Freeport-McMoRan's Debt Overview

Over the past three months, shares of Freeport-McMoRan Inc. FCX increased by 10.99%. Before having a look at the importance of debt, let's look at how much debt Freeport-McMoRan has.

Freeport-McMoRan Debt

According to the Freeport-McMoRan's most recent balance sheet as reported on May 4, 2023, total debt is at $9.63 billion, with $9.59 billion in long-term debt and $49.00 million in current debt. Adjusting for $6.85 billion in cash-equivalents, the company has a net debt of $2.78 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 Freeport-McMoRan's $50.91 billion in total assets, the debt-ratio is at 0.19. As a rule of thumb, a debt-ratio more than 1 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 25% 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.

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.