AMC Entertainment's Debt Overview

Over the past three months, shares of AMC Entertainment AMC decreased by 5.03%. Before we understand the importance of debt, let us look at how much debt AMC Entertainment has.

AMC Entertainment's Debt

Based on AMC Entertainment’s balance sheet as of August 6, 2020, long-term debt is at $6.13 billion and current debt is at $30.00 million, amounting to $6.16 billion in total debt. Adjusted for $498.00 million in cash-equivalents, the company's net debt is at $5.66 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering AMC Entertainment’s $11.27 billion in total assets, the debt-ratio is at 0.55. 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.

Why Shareholders Look At Debt?

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

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.