Canadian Natural Res Inc. shares CNQ up 1.57% over the past three months. Before we take a look at the meaning of debt, let’s look at how much debt Canadian Natural Res has.

Canadian Natural Debt

According to Canadian Natural Res’ most recent balance sheet, reported on March 27, 2020, total debt is $22.15 billion, of which $19.71 billion is long-term debt and $2.44 billion of ongoing debt. Adjusted for $105.55 million in cash, the company has net debt of $22.04 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.

Investors look at the leverage ratio to understand how much financial leverage a company has. Canadian Natural Res has total assets of $59.32 billion, which translates to a debt ratio of 0.37. 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. A debt ratio of 35% 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 a relatively lower funding cost than equity, making it an attractive option for executives.

However, interest payment obligations may adversely affect the Company’s cash flow. Shareholders can keep excess profits from the debt when companies use the debt for their operations.

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