Market Overview

Huntsman's Debt Overview

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Over the past three months, shares of Huntsman (NYSE: HUN) moved higher by 22.43%. Before having a look at the importance of debt, let us look at how much debt Huntsman has.

Huntsman's Debt

Based on Huntsman’s balance sheet as of July 28, 2020, long-term debt is at $1.53 billion and current debt is at $650.00 million, amounting to $2.18 billion in total debt. Adjusted for $1.25 billion in cash-equivalents, the company's net debt is at $923.00 million.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Huntsman’s $8.13 billion in total assets, the debt-ratio is at 0.27. 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 35% might be higher for one industry and average 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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

 

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