What Does Sempra Energy's Debt Look Like?

Over the past three months, shares of Sempra Energy Inc. SRE increased by 6.55%. Before having a look at the importance of debt, let's look at how much debt Sempra Energy has.

Sempra Energy Debt

Based on Sempra Energy's balance sheet as of November 3, 2022, long-term debt is at $23.83 billion and current debt is at $2.75 billion, amounting to $26.59 billion in total debt. Adjusted for $685.00 million in cash-equivalents, the company's net debt is at $25.90 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.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Sempra Energy has $75.56 billion in total assets, therefore making the debt-ratio 0.35. 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.

Importance of Debt

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.

Interest-payment obligations can impact 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.