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An Investor’s Guide to Celanese’s Leverage

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An Investor’s Guide to Celanese’s Leverage PART 1 OF 5

How Is Celanese Handling Its Growing Debt?

Celanese’s debt

At the end of 2Q17, Celanese (CE) reported long-term debt of ~$2.9 billion and short-term debt of $384.0 million. The total outstanding debt stood at ~$3.3 billion. The company’s current debt level is its highest in the past five years.

Since 2012, CE’s debt has grown at a CAGR1 of just 1.6%. However, Celanese’s debt level stands at a five-year high.

How Is Celanese Handling Its Growing Debt?

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Celanese’s debt-to-equity ratio

The debt-to-equity ratio is an indication of the level of debt used by a company to grow its assets. A higher debt-to-equity ratio indicates that a company has used extensive borrowing to finance its growth. However, the cost of debt can hamper its earnings due to high interest expenses.

At the end of 2Q17, Celanese’s debt-to-equity ratio stood at ~1.2x, which is higher than the industry average of 0.94x. Celanese’s peers Westlake Chemical (WLK), Huntsman (HUN), and Eastman Chemical (EMN) had debt-to-equity ratios of 0.91x, ~2.5x, and ~1.4x, respectively.

Celanese’s free cash flows

With Celanese’s (CE) debt-to-equity ratio above the industry average, the company can make use of its free cash flow for early repayment of its debt and improve its debt-to-equity ratio. Celanese has been generating strong free cash flows.

Since 2012, CE’s free cash flow has grown at a CAGR of 14%. However, it appears that repayment of debt is not a top priority for the company, as other financial activities could be more beneficial than debt repayment. If the free cash flows are used for activities like expansion, share repurchases and other actions could be more beneficial than repayment of debt.

Investors can indirectly hold Celanese by investing in the Guggenheim Mid-Cap Core ETF (CZA), which invested 1.5% of its portfolio in Celanese on September 27, 2017.

  1. compound annual growth rate
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