What’s Under the Hood of Fiat Chrysler’s Balance Sheet?



Fiat Chrysler’s balance sheet

The auto industry is highly capital-intensive in nature, and auto companies such as Fiat Chrysler Automobiles (FCAU) tend to utilize debt extensively. High debt levels increase a company’s risk profile because debt is a contractual obligation that a company must fulfill regardless of market conditions. Therefore, it’s important for investors to pay attention to auto companies’ leverage positions.

In this article, we’ll take a closer look at Fiat Chrysler’s balance sheet by looking at its current leverage ratios, and we’ll find out what this means for investors.

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High total debt-to-capitalization ratio

Fiat Chrysler has the highest debt built in to its capital structure among most major automakers (FXD), including Ford Motor Company (F) and General Motors (GM). At the end of 1Q16, FCAU’s total debt accounted for more than 74.4% of its capital structure—higher than GM’s 60.1% and Ford’s 72.4%.

The total debt-to-capitalization ratio tells us about the percentage of debt involved in a company’s capital structure, which is composed of debt and equity.

Net debt-to-EBITDA ratio

At the end of 1Q16, Fiat Chrysler’s net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio stood at 1.03x. By comparison, Fiat Chrysler’s direct peers General Motors, Ford, and Volkswagen (VLKAY) had negative net debt-to-EBITDA ratios because they had more cash than debt at the end of the same period.

This difference suggests that FCAU’s peers are in better shape in terms of financial health, because significantly high debt can make a business’s profits and losses highly volatile and increase its risk profile.

Continue to the next part to know why the relaunch of the luxury brand Alfa Romeo could help Fiat Chrysler going forward.


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