Shares of American Axle & Mfg Hldgs AXL increased by 4.48% in the past three months. Before having a look at the importance of debt, let us look at how much debt American Axle & Mfg Hldgs has.
American Axle & Mfg Hldgs's Debt
According to the American Axle & Mfg Hldgs’s most recent financial statement as reported on July 31, 2020, total debt is at $4.14 billion, with $3.56 billion in long-term debt and $573.70 million in current debt. Adjusting for $893.30 million in cash-equivalents, the company has a net debt of $3.24 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.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. American Axle & Mfg Hldgs has $6.05 billion in total assets, therefore making the debt-ratio 0.68. 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 25% 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.
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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