How Does ConocoPhillips's Debt Look Like?
Shares of ConocoPhillips Inc. (NYSE: COP) moved lower by 6.23% in the past three months. Before we understand the importance of debt, let's look at how much debt ConocoPhillips has.
ConocoPhillips's Debt
According to the ConocoPhillips’s most recent financial statement as reported on May 5, 2020, total debt is at $14.97 billion, with $14.85 billion in long-term debt and $126.00 million in current debt. Adjusting for $3.91 billion in cash-equivalents, the company has a net debt of $11.06 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering ConocoPhillips’s $65.03 billion in total assets, the debt-ratio is at 0.23. Generally speaking, a debt-ratio more than 1 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 25% might be higher for one industry, whereas average for another.
Why Debt Is Important
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. 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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