Over the past three months, shares of Plains All American (NASDAQ:PAA) moved higher by 11.86%. Before having a look at the importance of debt, let us look at how much debt Plains All American has.
Plains All American's Debt
According to the Plains All American's most recent financial statement as reported on November 8, 2021, total debt is at $9.20 billion, with $8.39 billion in long-term debt and $808.00 million in current debt. Adjusting for $191.00 million in cash-equivalents, the company has a net debt of $9.01 billion.
Also check out this: Moderna And 4 Other Stocks Sold By Insiders
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, shareholders look at the debt ratio. Considering Plains All American's $24.20 billion in total assets, the debt-ratio is at 0.38. 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 35% might be higher for one industry and average for another.
Why Debt Is Important
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.
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.
