A Look Into Fluor's Debt

Shares of Fluor Inc. FLR moved higher by 5.41% in the past three months. Before having a look at the importance of debt, let's look at how much debt Fluor has.

Fluor's Debt

Based on Fluor’s financial statement as of October 31, 2019, long-term debt is at $1.64 billion and current debt is at $45.24 million, amounting to $1.68 billion in total debt. Adjusted for $1.81 billion in cash-equivalents, the company's net debt is at $-122.96 million.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Fluor has $7.88 billion in total assets, therefore making the debt-ratio 0.21. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 25% might be higher for one industry, whereas normal for another.

Why Debt Is Important

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

Interest-payment obligations can impact the cash-flow of the company. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.