Market Overview

A Look Into FMC's Debt

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Shares of FMC Inc. (NYSE: FMC) moved higher by 14.46% in the past three months. Before we understand the importance of debt, let's look at how much debt FMC has.

FMC's Debt

Based on FMC’s financial statement as of August 5, 2020, long-term debt is at $3.03 billion and current debt is at $614.50 million, amounting to $3.64 billion in total debt. Adjusted for $342.70 million in cash-equivalents, the company's net debt is at $3.30 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering FMC’s $9.99 billion in total assets, the debt-ratio is at 0.36. 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. A debt ratio of 40% might be higher for one industry, whereas average for another.

Why Debt Is Important

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

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.

 

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