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

Over the past three months, shares of Archer-Daniels Midland Inc. ADM moved higher by 9.28%. Before we understand the importance of debt, let's look at how much debt Archer-Daniels Midland has.

Archer-Daniels Midland's Debt

Based on Archer-Daniels Midland's financial statement as of October 25, 2022, long-term debt is at $7.67 billion and current debt is at $1.07 billion, amounting to $8.74 billion in total debt. Adjusted for $1.10 billion in cash-equivalents, the company's net debt is at $7.64 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, shareholders look at the debt ratio. Considering Archer-Daniels Midland's $58.30 billion in total assets, the debt-ratio is at 0.15. 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. A debt ratio of 40% might be higher for one industry, but 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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This article was generated by Benzinga's automated content engine and reviewed by an editor.