Over the past three months, shares of NGL Energy Partners (NYSE:NGL) rose by 10.18%. Before we understand the importance of debt, let us look at how much debt NGL Energy Partners has.
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NGL Energy Partners's Debt
According to the NGL Energy Partners's most recent balance sheet as reported on November 9, 2021, total debt is at $3.42 billion, with $3.42 billion in long-term debt and $2.28 million in current debt. Adjusting for $5.53 million in cash-equivalents, the company has a net debt of $3.42 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.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering NGL Energy Partners's $5.98 billion in total assets, the debt-ratio is at 0.57. 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 25% might be higher for one industry and average for another.
Why Shareholders Look At Debt?
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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