Market Overview

Apache's Debt Overview


Shares of Apache Inc. (NASDAQ: APA) increased by 15.11% in the past three months. Before we understand the importance of debt, let's look at how much debt Apache has.

Apache's Debt

Based on Apache’s financial statement as of July 30, 2020, long-term debt is at $8.52 billion and current debt is at $294.00 million, amounting to $8.82 billion in total debt. Adjusted for $135.00 million in cash-equivalents, the company's net debt is at $8.68 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Apache’s $13.00 billion in total assets, the debt-ratio is at 0.68. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. For example, a debt ratio of 25% might be higher for one industry, whereas normal for another.

Why Shareholders Look At Debt?

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.

However, interest-payment obligations can have an adverse impact on 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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