United Parcel Service's Debt Overview

Shares of United Parcel Service UPS moved higher by 22.21% in the past three months. Before we understand the importance of debt, let us look at how much debt United Parcel Service has.

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United Parcel Service's Debt

Based on United Parcel Service's balance sheet as of May 5, 2021, long-term debt is at $21.92 billion and current debt is at $1.81 billion, amounting to $23.73 billion in total debt. Adjusted for $7.73 billion in cash-equivalents, the company's net debt is at $16.00 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 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, investors look at the debt ratio. Considering United Parcel Service's $63.31 billion in total assets, the debt-ratio is at 0.37. Generally speaking, a debt-ratio more than one 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 and 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.

Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

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