What Does Tenneco's Debt Look Like?
Shares of Tenneco (NYSE: TEN) increased by 11.49% in the past three months. Before having a look at the importance of debt, let us look at how much debt Tenneco has.
Tenneco's Debt
Based on Tenneco’s balance sheet as of August 6, 2020, long-term debt is at $6.63 billion and current debt is at $222.00 million, amounting to $6.85 billion in total debt. Adjusted for $1.36 billion in cash-equivalents, the company's net debt is at $5.49 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.
Investors look at the debt-ratio to understand how much financial leverage a company has. Tenneco has $12.39 billion in total assets, therefore making the debt-ratio 0.55. As a rule of thumb, a debt-ratio more than one 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 and normal 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, due to interest-payment obligations, cash-flow of a company can be impacted. 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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