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Over the past three months, shares of Dominion Energy (NYSE:D) moved higher by 6.47%. Before having a look at the importance of debt, let us look at how much debt Dominion Energy has.
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Dominion Energy's Debt
According to the Dominion Energy's most recent balance sheet as reported on November 5, 2021, total debt is at $41.51 billion, with $34.77 billion in long-term debt and $6.73 billion in current debt. Adjusting for $180.00 million in cash-equivalents, the company has a net debt of $41.33 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, investors look at the debt ratio. Considering Dominion Energy's $99.80 billion in total assets, the debt-ratio is at 0.42. 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 normal for another.
Importance Of 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.
Interest-payment obligations can impact 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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