United Airlines: Debt Snapshot
During the past three months, the actions of United Airlines Holdings (NASDAQ:UAL) increased by 3.75%. Before looking at the importance of debt, let’s look at the amount of debt of United Airlines Holdings.
United Airlines Holdings’ debt
According to the latest United Airlines Holdings financial statement released on March 1, 2021, total debt stands at $ 28.29 billion, with $ 26.20 billion in long-term debt and $ 2.09 billion in debt. current. Adjusted for $ 11.27 billion in cash equivalents, the company has net debt of $ 17.02 billion.
Let’s define some of the terms we used in the paragraph above. Short-term debt is the part of a company’s debt that is owed for less than one year, while long-term debt is the part for more than one year. Cash equivalents include cash and all liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.
Shareholders look at the debt ratio to understand a company’s financial leverage. United Airlines Holdings has total assets of $ 59.55 billion, making the debt ratio of 0.48. Typically, a debt ratio greater than one indicates that a considerable amount of debt is financed by assets. A higher debt ratio can also mean that the company could default if interest rates were to rise. However, debt ratios vary considerably from sector to sector. A debt ratio of 35% may be higher for one industry and normal for another.
Why debt matters
Debt is an important factor in a company’s capital structure and can help it achieve growth. Debt generally has a relatively lower cost of financing than equity, making it an attractive option for executives.
However, interest payment obligations can have a negative impact on the company’s cash flow. Stock owners can keep excess profits, generated by debt capital, when companies use debt capital for their business operations.
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