Over the past three months, the Dow (NYSE:DOW) stock has fallen 6.41%. To understand how a company’s price changes over a period of time, such as three months, it can be helpful to look at its financials. One of the key aspects of a company’s finances is debt, but before we understand the importance of debt, let’s take a look at how much debt Dow has.
Dow’s most recent balance sheet, reported on April 26, 2023, shows total debt of $15.26 billion, including long-term debt of $14.74 billion and current debt of $525 million. there is Adjusting for cash equivalents of $3.32 billion, the company’s net debt is $11.95 billion.
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Let’s define some of the terms used in the paragraph above. current debt is the portion of the company’s debt that is due within one year. long term debt The portion that is paid for over a year. cash equivalent Includes cash and liquid securities with a maturity of 90 days or less. total debt Equal to current debt plus long-term debt minus cash equivalents.
To understand the extent of a company’s financial leverage, investors look to the debt ratio. Considering Dow’s total assets of $59.32 billion, the debt ratio is 0.26. In general, a debt-to-equity ratio greater than 1 means that most of the debt is covered by assets. Higher debt ratios also increase the risk of loan default if interest rates rise. Different industries have different tolerances for debt ratios. For example, a debt ratio of 25% may be high in one industry but normal in another.
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the importance of debt
In addition to equity, debt is also an important component of a company’s capital structure and contributes to the company’s growth. Their lower funding costs compared to equities make them an attractive option for managers looking to raise capital.
However, interest payment obligations can affect a company’s cash flow. When a company uses debt capital to run its business, stockholders can retain excess profits arising from the debt capital.
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This article was generated by Benzinga’s automated content engine and reviewed by editors.
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