What Does Petrobras Brasileiro's Debt Look Like?

Over the past three months, shares of Petrobras Brasileiro Inc. PBR moved lower by 10.42%. Before we understand the importance of debt, let's look at how much debt Petrobras Brasileiro has.

Petrobras Brasileiro's Debt

According to the Petrobras Brasileiro's most recent balance sheet as reported on April 27, 2017, total debt is at $118.84 billion, with $108.60 billion in long-term debt and $10.25 billion in current debt. Adjusting for $21.20 billion in cash-equivalents, the company has a net debt of $97.64 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 includes 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, investors look at the debt ratio. Considering Petrobras Brasileiro's $246.98 billion in total assets, the debt-ratio is at 0.48. Generally speaking, a debt-ratio more than 1 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. For example, a debt ratio of 40% might be higher for one industry, but normal for another.

Why Debt Is Important

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

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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This article was generated by Benzinga's automated content engine and reviewed by an editor.