A Look Into Ford Motor's Debt

Shares of Ford Motor F moved higher by 10.78% in the past three months. Before having a look at the importance of debt, let us look at how much debt Ford Motor has.

Ford Motor's Debt

According to the Ford Motor’s most recent balance sheet as reported on July 31, 2020, total debt is at $175.23 billion, with $119.89 billion in long-term debt and $55.34 billion in current debt. Adjusting for $30.99 billion in cash-equivalents, the company has a net debt of $144.24 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Ford Motor has $269.37 billion in total assets, therefore making the debt-ratio 0.65. 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 average for another.

Why Investors Look At 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, 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.