Market Overview

What Does Air Products & Chemicals's Debt Look Like?


Shares of Air Products & Chemicals (NYSE: APD) increased by 7.05% in the past three months. Before we understand the importance of debt, let us look at how much debt Air Products & Chemicals has.

Air Products & Chemicals's Debt

According to the Air Products & Chemicals’s most recent financial statement as reported on July 23, 2020, total debt is at $7.91 billion, with $7.07 billion in long-term debt and $838.90 million in current debt. Adjusting for $3.92 billion in cash-equivalents, the company has a net debt of $3.99 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.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Air Products & Chemicals’s $24.78 billion in total assets, the debt-ratio is at 0.32. 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 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, 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.

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