Shares of AMC Entertainment Inc. (NYSE: AMC) moved higher by 9.87% in the past three months. Before we understand the importance of debt, let’s look at how much debt AMC Entertainment has.

AMC Entertainment’s Debt

Based on AMC Entertainment’s balance sheet as of August 6, 2020, long-term debt is at $6.13 billion and current debt is at $30.00 million, amounting to $6.16 billion in total debt. Adjusted for $498.00 million in cash-equivalents, the company’s net debt is at $5.66 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. AMC Entertainment has $11.27 billion in total assets, therefore making the debt-ratio 0.55. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. A debt ratio of 35% might be higher for one industry, whereas average for another.

Why Investors Look At Debt?

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.

However, interest-payment obligations can have an adverse impact on 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.