How Does NextEra Energy's Debt Look?

Over the past three months, shares of NextEra Energy NEE moved higher by 23.86%. Before we understand the importance of debt, let us look at how much debt NextEra Energy has.

NextEra Energy's Debt

Based on NextEra Energy’s financial statement as of July 24, 2020, long-term debt is at $42.67 billion and current debt is at $4.88 billion, amounting to $47.55 billion in total debt. Adjusted for $1.01 billion in cash-equivalents, the company's net debt is at $46.54 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering NextEra Energy’s $121.96 billion in total assets, the debt-ratio is at 0.39. As a rule of thumb, a debt-ratio more than one 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. A debt ratio of 35% might be higher for one industry and normal 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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. 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.