Shares of Air Products & Chemicals APD moved lower by 9.07% 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
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Based on Air Products & Chemicals's financial statement as of November 18, 2021, long-term debt is at $6.88 billion and current debt is at $486.90 million, amounting to $7.36 billion in total debt. Adjusted for $4.47 billion in cash-equivalents, the company's net debt is at $2.89 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. Air Products & Chemicals has $26.86 billion in total assets, therefore making the debt-ratio 0.27. 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.
Why Debt Is Important
Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.
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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