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Shares of Oasis Midstream Partners (NASDAQ: OMP) fell by 5.32% in the past three months. Before having a look at the importance of debt, let us look at how much debt Oasis Midstream Partners has.
Oasis Midstream Partners's Debt
According to the Oasis Midstream Partners’s most recent balance sheet as reported on August 5, 2020, total debt is at $516.00 million, with $487.50 million in long-term debt and $28.50 million in current debt. Adjusting for $27.14 million in cash-equivalents, the company has a net debt of $488.86 million.
Shareholders look at the debt-ratio to understand how much financial leverage a company has. Oasis Midstream Partners has $1.06 billion in total assets, therefore making the debt-ratio 0.48. 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 40% might be higher for one industry and average for another.
Importance Of Debt
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, 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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