Shares of Occidental Petroleum’s Inc. OXY moved lower by 10.31% in the past three months. Before having a look at the importance of debt, let’s look at how much debt Occidental Petroleum’s has.
Occidental Petroleum’s Debt
Based on Occidental Petroleum’s’s financial statement as of November 8, 2022, long-term debt is at $20.48 billion and current debt is at $546.00 million, amounting to $21.02 billion in total debt. Adjusted for $1.23 billion in cash-equivalents, the company’s net debt is at $19.79 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 includes 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 Occidental Petroleum’s’s $72.14 billion in total assets, the debt-ratio is at 0.29. Generally speaking, a debt-ratio more than 1 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, but average for another.
Why Shareholders Look At 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.
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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This article was generated by Benzinga’s automated content engine and reviewed by an editor.
Read More: A Look Into Occidental Petroleum’s Debt – Occidental Petroleum (NYSE:OXY)