A Look Into Kinder Morgan's Debt

Over the past three months, shares of Kinder Morgan KMI moved lower by 9.00%. Before we understand the importance of debt, let us look at how much debt Kinder Morgan has.

Kinder Morgan's Debt

Based on Kinder Morgan’s balance sheet as of July 27, 2020, long-term debt is at $31.44 billion and current debt is at $3.51 billion, amounting to $34.95 billion in total debt. Adjusted for $526.00 million in cash-equivalents, the company's net debt is at $34.42 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Kinder Morgan has $71.78 billion in total assets, therefore making the debt-ratio 0.49. 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 25% might be higher for one industry and average for another.

Why Debt Is Important

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.