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AK Steel’s Leverage Ratios Show Slight Improvement in 2Q15

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Aug. 8 2015, Updated 3:06 a.m. ET

AK Steel’s leverage ratios

Previously, we discussed that AK Steel’s 2Q15 earnings were better than analyst expectations. AK Steel’s share price has surged in the last couple of trading sessions. Though AK Steel (AKS) posted a loss in 2Q15, it managed to slightly bring down its huge debt.

The previous chart shows the debt levels of AK Steel. Its total debt reduced by $86 million in 2Q15. This is the first quarter since 1Q12 that AK Steel’s debt levels have come down on a quarter-over-quarter basis.

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AK Steel’s huge debt pile

AK Steel’s total debt has risen by almost 2.5 times since 2012. Interestingly, the rising debt levels of AKS are in contrast to its competitors. Its peers like ArcelorMittal (MT) and U.S. Steel (X) have been working to reduce their debt levels.

What are AK Steel’s competitors doing?

ArcelorMittal has an internal target to reduce its net debt to $15 billion over the medium term. It’s part of ArcelorMittal’s Management Gain program. However, the debt reduction target seems like a tall task given the current market scenario.

U.S. Steel’s net debt came down by over $1.2 billion in 2014. Net debt is a company’s total debt minus cash and cash equivalents. Nucor (NUE) has one of the lowest leverage ratios among steel companies. The company currently forms 2.67% of the Materials Select Sector SPDR ETF (XLB).

Another perennial problem that AK Steel faces relates to cash flows. The company has burnt cash in the last several quarters, which has only added to its huge debt pile. We’ll discuss whether AK Steel was able to address its negative free cash flows in 2Q15 in the next part of the series.

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