A Look Into Targa Resources Debt

Over the past three months, shares of Targa Resources TRGP fell by 13.14%. Before we understand the importance of debt, let us look at how much debt Targa Resources has.

Targa Resources's Debt

According to the Targa Resources’s most recent financial statement as reported on August 6, 2020, total debt is at $7.99 billion, with $7.58 billion in long-term debt and $406.80 million in current debt. Adjusting for $196.20 million in cash-equivalents, the company has a net debt of $7.79 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Targa Resources’s $15.97 billion in total assets, the debt-ratio is at 0.5. 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 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.