How Does Hexcel's Debt Look?

Shares of Hexcel HXL fell by 0.80% in the past three months. Before having a look at the importance of debt, let us look at how much debt Hexcel has.

Hexcel's Debt

Based on Hexcel's balance sheet as of April 19, 2021, long-term debt is at $912.00 million and current debt is at $300.00 thousand, amounting to $912.30 million in total debt. Adjusted for $82.00 million in cash-equivalents, the company's net debt is at $830.30 million.

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 Hexcel's $2.89 billion in total assets, the debt-ratio is at 0.32. 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 40% might be higher for one industry and normal 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. 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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