What Does Archer-Daniels Midland's Debt Look Like?

Over the past three months, shares of Archer-Daniels Midland ADM increased by 6.44%. Before we understand the importance of debt, let us look at how much debt Archer-Daniels Midland has.

Archer-Daniels Midland's Debt

According to the Archer-Daniels Midland’s most recent balance sheet as reported on October 30, 2020, total debt is at $8.13 billion, with $7.92 billion in long-term debt and $211.00 million in current debt. Adjusting for $948.00 million in cash-equivalents, the company has a net debt of $7.18 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. Archer-Daniels Midland has $44.80 billion in total assets, therefore making the debt-ratio 0.18. 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 40% might be higher for one industry and average 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, 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.

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