Over the past three months, Petrobras Brasileiro Inc. PBR down 10.42%. Before understanding the meaning of debt, let’s look at how much debt Petrobras Brasileiro has.

Petrobras Brasileiros Debt

According to Petrobras Brasileiro’s latest balance sheet, reported on April 27, 2017, its total debt is US$118.84 billion, of which US$108.60 billion is long-term and US$10.25 billion is current Debts. Adjusted for $21.20 billion in cash, the company has net debt of $97.64 billion.

Let’s define some of the terms we used in the paragraph above. Current Debt is that portion of a company’s debt that falls due within one year, during Long-term liabilities is the portion due in more than 1 year. cash equivalents includes cash and all liquid securities with maturities of 90 days or less. total debt equals current liabilities plus non-current liabilities minus cash equivalents.

To understand a company’s level of financial leverage, investors look at the leverage ratio. Taking into account Petrobras Brasileiro’s total assets of $246.98 billion, the debt ratio is 0.48. In general, a debt ratio greater than 1 means that a large portion of the debt is funded by assets. As the debt ratio increases, so does the risk of default on a loan when interest rates rise. Different industries have different tolerance levels for debt ratios. For example, a 40% debt ratio may be higher for one industry but normal for another.

Why Debt Matters

In addition to equity, borrowed capital is an important factor in the capital structure of a company and contributes to its growth. The lower cost of financing compared to equity makes it an attractive option for executives trying to raise capital.

However, due to interest payment obligations, a company’s cash flow can be adversely affected. Financial leverage also allows companies to use additional capital to operate the business, allowing equity investors to retain excess profit generated by the leverage.

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