A Look Into Delta Air Lines' Debt

Shares of Delta Air Lines Inc. DAL increased by 7.21% in the past three months. Before we understand the importance of debt, let's look at how much debt Delta Air Lines has.

Delta Air Lines's Debt

Based on Delta Air Lines’s balance sheet as of April 22, 2020, long-term debt is at $12.66 billion and current debt is at $5.44 billion, amounting to $18.10 billion in total debt. Adjusted for $5.97 billion in cash-equivalents, the company's net debt is at $12.13 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Delta Air Lines’s $68.74 billion in total assets, the debt-ratio is at 0.26. As a rule of thumb, a debt-ratio more than 1 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, whereas average for another.

Why Investors Look At 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.