(CTN News) – Over the past three months, shares of AMC Entertainment Inc. have decreased by 10.00% in the past three months, which is the lowest level in three months.
As a first step in understanding how significant debt is, let’s have a look at how much debt AMC Entertainment owns in order to see its importance.
Debt of AMC Entertainment
On November 8, 2022, according to AMC Entertainment’s financial statements, the company’s long-term debt is $5.76 billion, and the company’s current debt is $133.80 million, for a total debt of $5.89 billion as of November 8, 2022.
In order to compute the net debt of the company, it has to incorporate $684.60 million in cash equivalents into the formula.
Here is a brief definition of some of the terms we used in the paragraph above. Generally, current debt refers to that part of a company’s debt that must be repaid within a year, while long-term debt refers to that part of the debt that must be repaid after a year.
In the context of cash equivalents, this includes both cash and liquid securities that have maturities less than 90 days.There are three types of debt in a company: current debt, long-term debt, and cash equivalents.
By looking at debt ratios, shareholders can get a sense of how much financial leverage a company has in order to reach its objectives. This is because they understand how much financial leverage it has.
It is critical to keep in mind that AMC Entertainment has a total asset value of $9.21 billion, so its debt-to-asset ratio is 0.64. As a general rule, if a company’s debt-to-asset ratio is greater than 1, this indicates that a significant portion of the company’s debt will be financed through its assets.
Should interest rates rise in the future, so would be the risk of default on loans. As the debt ratio increases, the risk of default will also increase.
There are different thresholds of debt-to-equity tolerance that apply to different companies in different industries. There is no doubt that a debt ratio of 25% might be higher for one industry, but normal for another.
Is there a reason why shareholders are interested in debt?
In addition to equity, debt plays an instrumental role in a company’s capital structure, and it contributes to its growth by allowing it to borrow. It becomes an attractive choice for executives looking to raise capital because of its lower financing costs compared to equity due to its lower costs.
Cash-flow of a company can be adversely affected by interest-payment obligations. The equity owners of companies may be able to keep any excess profits generated from the debt capital of the company.
This is as long as the debt capital is used to finance their business operations.
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