Stocks of Baker Hughes Inc. BKR down 6.57% in the last three months. Before we take a look at what debt means, let’s look at how much Baker Hughes owes.

Baker Hughes Debt

Based on Baker Hughes financial statements dated February 14, 2023, long-term debt is $5.98 billion and current debt is $677.00 million for total debt of $6.66 billion . Adjusted for $2.49 billion in cash, the company’s net debt is $4.17 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, shareholders look at the leverage ratio. Considering Baker Hughes’ total assets of $34.18 billion, the debt ratio is 0.19. As a rule of thumb, a debt ratio greater than 1 indicates that a significant portion of debt is funded by assets. A higher leverage ratio can also mean that the company faces default risk if interest rates rise. However, leverage ratios vary widely across different industries. A debt ratio of 25% may be higher for one industry but average for another.

Why Debt Matters

Debt is an important factor in a company’s capital structure and can contribute to growth. Debt typically has relatively lower funding costs than equity, making it an attractive option for executives.

However, interest payment obligations may adversely affect the Company’s cash flow. Financial leverage also allows companies to use additional capital to operate the business, allowing equity investors to retain excess profits generated by the leverage.

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