A Look Into Occidental Petroleum's Debt

Over the past three months, shares of Occidental Petroleum OXY moved lower by 41.57%. Before having a look at the importance of debt, let us look at how much debt Occidental Petroleum has.

Occidental Petroleum's Debt

According to the Occidental Petroleum’s most recent balance sheet as reported on August 10, 2020, total debt is at $38.49 billion, with $36.03 billion in long-term debt and $2.46 billion in current debt. Adjusting for $1.01 billion in cash-equivalents, the company has a net debt of $37.48 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Occidental Petroleum’s $89.45 billion in total assets, the debt-ratio is at 0.43. 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 Shareholders 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.

Interest-payment obligations can impact 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.