Market Overview

A Look Into Packaging Corp of America's Debt

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Shares of Packaging Corp of America (NYSE: PKG) rose by 6.96% in the past three months. Before having a look at the importance of debt, let us look at how much debt Packaging Corp of America has.

Packaging Corp of America's Debt

Based on Packaging Corp of America’s financial statement as of August 6, 2020, long-term debt is at $2.49 billion and current debt is at $13.50 million, amounting to $2.51 billion in total debt. Adjusted for $853.30 million in cash-equivalents, the company's net debt is at $1.65 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Packaging Corp of America’s $7.27 billion in total assets, the debt-ratio is at 0.34. 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 normal for another.

Importance Of 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.

Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

 

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