Packaging Corp of America's Debt Overview

Over the past three months, shares of Packaging Corp of America PKG fell by 2.41%. Before we understand the importance of debt, let us look at how much debt Packaging Corp of America has.

Packaging Corp of America's Debt

According to the Packaging Corp of America's most recent balance sheet as reported on August 5, 2021, total debt is at $2.51 billion, with $2.49 billion in long-term debt and $13.30 million in current debt. Adjusting for $972.20 million in cash-equivalents, the company has a net debt of $1.53 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.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Packaging Corp of America has $7.67 billion in total assets, therefore making the debt-ratio 0.33. 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 35% might be higher for one industry and normal for another.

Why Shareholders Look At 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. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.

Looking for stocks with low debt-to-equity ratios? Check out Benzinga Pro, a market research platform which provides investors with near-instantaneous access to dozens of stock metrics - including debt-to-equity ratio. Click here to learn more.