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Over the past three months, Ford Motor Inc. F decreased by 14.05%. Before we understand the importance of debt, let’s see how much debt Ford Motor has.
Ford engine debt
As of October 27, 2022, Ford Motor has long-term debt of $84.28 billion and current debt of $44.05 billion, for total debt of $128.33 billion. Adjusted for $21.55 billion in cash equivalents, the company’s net debt is $106.78 billion.
Let’s define some of the terms used in the above paragraph. Current debt is part of the company’s debt with a payment term of 1 year, while long term debt there is a part due in more than 1 year. Cash equivalents includes cash and any liquid securities with a maturity of 90 days or less. All debt equals current debt plus long-term debt minus cash equivalents.
Investors look at the debt ratio to understand how much leverage a company has. Ford Motor has total assets of $246.92 billion, giving it a debt ratio of 0.52. As a rule of thumb, a debt ratio above 1 indicates that a significant portion of the debt is financed by assets. A higher debt ratio can also indicate that a company may be at risk of default as interest rates rise. However, debt ratios vary widely across industries. For example, a debt ratio of 35% may be higher in one industry but normal in another.
Why debt matters
Debt is an important factor in a company’s capital structure and can help it achieve growth. Debt usually has a relatively lower cost of financing than equity, making it attractive to managers.
However, interest payment obligations can negatively affect the company’s cash flows. Shareholders can keep the excess profits from the loan capital if the companies use the loan capital for their business operations.
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This article was generated by Benzinga’s automated content engine and reviewed by an editor.
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