American Airlines Group: Debt Overview
Shares of American Airlines Group Inc. (NASDAQ: AAL) decreased by 36.09% in the past three months. Before having a look at the importance of debt, let's look at how much debt American Airlines Group has.
American Airlines Group's Debt
Based on American Airlines Group’s balance sheet as of July 23, 2020, long-term debt is at $28.70 billion and current debt is at $2.58 billion, amounting to $31.27 billion in total debt. Adjusted for $462.00 million in cash-equivalents, the company's net debt is at $30.81 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. American Airlines Group has $64.54 billion in total assets, therefore making the debt-ratio 0.48. 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 40% might be higher for one industry, whereas 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.
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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