Benzinga | Sep 4, 2020 08:15AM EDT

How Does Polymet Mining's Debt Look?

Over the past three months, shares of Polymet Mining (AMEX:PLM) decreased by 33.96%. Before we understand the importance of debt, let's look at how much debt Polymet Mining has.

Polymet Mining Corporation Ordinary Shares (Canada)'s Debt

According to the Polymet Mining's most recent balance sheet as reported on June 14, 2016, total debt is at $154.16 million, with $64.97 million in long-term debt and $89.19 million in current debt. Adjusting for $1.88 million in cash-equivalents, the company has a net debt of $152.28 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Polymet Mining has $340.56 million in total assets, therefore making the debt-ratio 0.45. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 25% might be higher for one industry, whereas average for another.

Why Debt Is Important

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

Interest-payment obligations can impact the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.