Market Overview

Chart Industries: Debt Overview

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Over the past three months, shares of Chart Industries (NASDAQ: GTLS) rose by 44.58%. Before we understand the importance of debt, let us look at how much debt Chart Industries has.

Chart Industries's Debt

According to the Chart Industries’s most recent balance sheet as reported on July 23, 2020, total debt is at $748.50 million, with $736.00 million in long-term debt and $12.50 million in current debt. Adjusting for $122.50 million in cash-equivalents, the company has a net debt of $626.00 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Chart Industries’s $2.45 billion in total assets, the debt-ratio is at 0.31. 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 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, interest-payment obligations can have an adverse impact on the cash-flow of the company. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.

 

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