Nutrien’s (NYSE:NTR) stock has dropped by a fraction of a percent in the last three months. Before we get into the importance of debt, let’s take a look at how much Nutrien owes.
The Debt of Nutrien
According to Nutrien’s financial statement as of February 26, 2021, overall debt is $10.22 billion, with long-term debt at $10.05 billion and current debt at $173.00 million. The company’s net debt is $8.77 billion after adjusting for $1.45 billion in cash equivalents.
Let’s define some of the terminology used in the preceding paragraph. The portion of a company’s debt due within a year is called current debt, while the portion due in more than a year is called long-term debt. Cash and liquid securities with maturities of 90 days or less are considered cash equivalents. Current debt plus long-term debt minus cash equivalents equals total debt.
The debt ratio is used by shareholders to determine how much financial leverage a company has. Nutrien’s debt-to-asset ratio is 0.22, based on its total assets of $47.19 billion. A debt-to-asset ratio greater than one indicates that assets are used to fund a significant percentage of debt. If interest rates rise, the danger of defaulting on loans rises as the debt-to-income ratio rises. Varying industries have different debt-ratio tolerance criteria. A debt-to-equity ratio of 40% may be excessive in one industry but typical in another.
Debt’s Importance In addition to equity, debt is an important component of a company’s capital structure and contributes to its growth. It becomes an appealing choice for executives seeking finance because it has a lower borrowing cost than stock.
However, a company’s cash flow may be harmed as a result of interest-payment requirements. When corporations use loan capital for commercial operations, equity owners can keep the excess profit earned by the debt capital.
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