Market Overview

How Does AutoNation's Debt Look?

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Over the past three months, shares of AutoNation (NYSE: AN) rose by 17.43%. Before having a look at the importance of debt, let us look at how much debt AutoNation has.

AutoNation's Debt

Based on AutoNation’s financial statement as of July 23, 2020, long-term debt is at $1.78 billion and current debt is at $2.83 billion, amounting to $4.61 billion in total debt. Adjusted for $257.30 million in cash-equivalents, the company's net debt is at $4.36 billion.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents include cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Investors look at the debt-ratio to understand how much financial leverage a company has. AutoNation has $9.45 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 40% might be higher for one industry and average for another.

Why Investors 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, interest-payment obligations can have an adverse impact on 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.

Looking for stocks with low debt-to-equity ratios? Check out Benzinga Pro, a market research platform which provides investors with near-instantaneous access to dozens of stock metrics - including debt-to-equity ratio. Click here to learn more.

 

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