Market Overview

A Look Into Energy Transfer's Debt

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Shares of Energy Transfer (NYSE: ET) decreased by 5.66% in the past three months. Before we understand the importance of debt, let us look at how much debt Energy Transfer has.

Energy Transfer's Debt

According to the Energy Transfer’s most recent balance sheet as reported on August 6, 2020, total debt is at $51.28 billion, with $51.25 billion in long-term debt and $34.00 million in current debt. Adjusting for $155.00 million in cash-equivalents, the company has a net debt of $51.13 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Energy Transfer has $95.91 billion in total assets, therefore making the debt-ratio 0.53. 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.

Importance Of 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. 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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