What Does Air Products & Chemicals' Debt Look Like?

Shares of Air Products & Chemicals Inc. APD fell by 13.30% in the past three months. Before having a look at the importance of debt, let's look at how much debt Air Products & Chemicals has.

Air Products & Chemicals Debt

According to the Air Products & Chemicals's most recent balance sheet as reported on February 2, 2023, total debt is at $7.40 billion, with $6.83 billion in long-term debt and $565.00 million in current debt. Adjusting for $3.13 billion in cash-equivalents, the company has a net debt of $4.27 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, investors look at the debt ratio. Considering Air Products & Chemicals's $28.28 billion in total assets, the debt-ratio is at 0.26. 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.

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.

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.