Thursday, November 26, 2020

Tag: What is the Most Important Item When Analyzing a Balance Sheet

What is the Most Important Item When Analyzing a Balance Sheet

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by Marin Katusa, Katusa Research:
When oil is trading at $45 per barrel, the answer for oil producers to the question above is “debt.”

Now that oil is down 18{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from this year’s high, debt is a large and growing concern in the oil patch. And if you’re a stock investor, this should concern you too.

That’s because of where debt and equity lie in a company’s capital structure. The people who own a company’s debt are first in line to get paid back if a company declares bankruptcy. The equity owners are last in line. The people who own a company’s debt are first in line to get paid interest before shareholders see a dime in dividends.

Debt is the single most important item on the balance sheet to understand when analyzing a company’s stock.