Alaska Air Group: Debt Overview

Over the past three months, shares of Alaska Air Group ALK rose by 14.72%. Before we understand the importance of debt, let us look at how much debt Alaska Air Group has.

Alaska Air Group's Debt

According to the Alaska Air Group’s most recent financial statement as reported on August 4, 2020, total debt is at $2.64 billion, with $1.55 billion in long-term debt and $1.09 billion in current debt. Adjusting for $1.51 billion in cash-equivalents, the company has a net debt of $1.13 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Alaska Air Group has $14.00 billion in total assets, therefore making the debt-ratio 0.19. 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 40% 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.

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.