What Does FedEx's Debt Look Like?

Shares of FedEx FDX increased by 87.44% in the past three months. Before having a look at the importance of debt, let us look at how much debt FedEx has.

FedEx's Debt

According to the FedEx’s most recent balance sheet as reported on September 15, 2020, total debt is at $23.29 billion, with $23.20 billion in long-term debt and $87.00 million in current debt. Adjusting for $6.95 billion in cash-equivalents, the company has a net debt of $16.34 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. FedEx has $77.65 billion in total assets, therefore making the debt-ratio 0.3. Generally speaking, a debt-ratio more than one 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 and normal for another.

Importance Of 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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.