ABB Ltd (NYSE: ABB) – A look at ABB’s debt
Over the past three months, the actions of ABB (NYSE: ABB) fell 5.22%. Before we understand the importance of debt, let’s take a look at ABB’s debt amount.
Based on ABB’s financial statements as of February 26, 2021, long-term debt stands at $ 4.83 billion and current debt at $ 1.29 billion, for a total of $ 6.12 billion. dollars. Adjusted for $ 3.28 billion in cash equivalents, the company’s net debt stands at $ 2.84 billion.
Let’s define some of the terms we used in the paragraph above. Short-term debt is the part of a company’s debt that is owed for less than one year, while long-term debt is the part over one year. Cash equivalents include cash and all liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
To understand a company’s degree of financial leverage, investors look at the debt ratio. Considering ABB’s total assets of $ 41.09 billion, the debt ratio is 0.15. Generally speaking, a debt ratio greater than one means that a large part of the debt is financed with assets. As the debt ratio rises, the risk of default increases if interest rates rise. Different industries have different tolerance levels for debt ratios. A debt ratio of 25% may be higher for one industry and normal for another.
Significance of debt
Debt is an important factor in the capital structure of a business and can help it achieve growth. Debt generally has a relatively lower cost of financing than equity, making it an attractive option for executives.
Interest payment obligations can have an impact on the cash flow of the business. Stock owners can keep excess profits, generated by debt capital, when companies use debt capital for their business operations.
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