Shares of Andersons ANDE moved higher by 33.72% in the past three months. Before we understand the importance of debt, let us look at how much debt Andersons has.
According to the Andersons’s most recent financial statement as reported on August 7, 2020, total debt is at $1.14 billion, with $975.97 million in long-term debt and $164.55 million in current debt. Adjusting for $30.01 million in cash-equivalents, the company has a net debt of $1.11 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. Andersons has $3.30 billion in total assets, therefore making the debt-ratio 0.35. 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 25% might be higher for one industry and normal for another.
Importance Of Debt
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.
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