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I'm trying to get my head around D/E Ratios and i noticed something that is confusing me.

I picked HAL and AAPL to compare against each other as i believe HAL is currently struggling and AAPL is quite strong.
I've pulled the following data from morningstar (great resource!) and am using the following calculation to calculate D/E Ratio : total liabilities / total equity = D/E Ratio.

Q1 2021
HALAAPL
TOTAL ASSETS (BIL)
20.58​
337.16​
TOTAL LIABILITIES (BIL)
15.4​
267.98​
TOTAL DEBT (BIL)
10.61​
121.65​
TOTAL EQUITY (BIL)
5.18​
69.18​
CASH & CASH EQUIVALENTS (BIL)
2.45​
69.83​

HAL has a D/E Ratio of 2.97 ($2.97 debt for ever $1 of equity)
AAPL has a D/E Ratio of 3.87 ($3.87 debt for every $1 of equity)

To me this data indicates that AAPL has more debt and is a higher risk (based only on the D/E Ratio) than HAL (which is clearly struggling). This in turn would indicate that AAPL has something else going for it that makes it more valuable - perhaps the 70 bil in cash it's sitting on?

Am I on the right track here?

thanks in advance.
 

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The risk is more related to ability to pay bills. Look at the current ratio which is Current assets/ Current liabilities. If it is > 1 the co is ok.
Look at the operating cash flow in the Cash flow statement. You want +ve op cash flow . If it is -ve the co may be spending $ to grow and have higher expenses. Read the MD& A report to find out. Make sure revenue is growing and gross profit > -0 .
 

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I'm trying to get my head around D/E Ratios and i noticed something that is confusing me.

I picked HAL and AAPL to compare against each other as i believe HAL is currently struggling and AAPL is quite strong.
I've pulled the following data from morningstar (great resource!) and am using the following calculation to calculate D/E Ratio : total liabilities / total equity = D/E Ratio.

Q1 2021
HALAAPL
TOTAL ASSETS (BIL)
20.58​
337.16​
TOTAL LIABILITIES (BIL)
15.4​
267.98​
TOTAL DEBT (BIL)
10.61​
121.65​
TOTAL EQUITY (BIL)
5.18​
69.18​
CASH & CASH EQUIVALENTS (BIL)
2.45​
69.83​


To me this data indicates that AAPL has more debt and is a higher risk (based only on the D/E Ratio) than HAL (which is clearly struggling). This in turn would indicate that AAPL has something else going for it that makes it more valuable - perhaps the 70 bil in cash it's sitting on?
thanks in advance.
This is accounting from the balance sheet. To value a business, other than a liquiditation, one focuses on the cash flow generation into the future. You will find what you need on the income statement and statement of cash flows. Looking at these two companies in that light I think you will see Apple produces a lot more cash and therefore justifies a higher equity value.
 

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I'm trying to get my head around D/E Ratios and i noticed something that is confusing me.

I picked HAL and AAPL to compare against each other as i believe HAL is currently struggling and AAPL is quite strong.

Am I on the right track here?

thanks in advance.
Yes/No

You are comparing important things.
You are comparing two totally different companies, with totally different prospects.

Apple makes shiny toys that people like, it also collects nice commissions on media and app sales.
This industry is still growing, or at least expected to remain in some form for years to come.

HAL is in a dying industry that is under attack from governments.
Their growth prospects are absymal.

Governments have said they want to legislate away 2/3 of the oil industry (transportation), and are actively starting to move in this direction now.

In short, Apple will realistically be a big company in 20+ years
HAL will be much smaller.
 

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Debt or balance sheet items usually give you an idea of the risk you are taking as opposed to the business potential you are buying. In order to understand this risk you need to look at debt in a number of ways.

1) Debt to equity
2) Debt to cash flow
3) Interest coverage
4) To what degree are earnings being leveraged and can that continue.

and how do all these compare to comparable companies being offered for sale at any given time.

The problem with just using a debt to equity ratio is probably best seen in dividend payors and stock rebuyers. Both of those events are something a shareholder wants to see to improve their performance but the more a company does it the worse the debt to equity number becomes. So unless you look at the debt situation from a number of angles you cannot get a true idea of what it represents. Is it a dangerous situation, a manageable situation or an opportunity? That is really all you are trying to find out.
 
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