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A Closer Look at Duke Energy’s Concerning Debt Profile

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Duke Energy’s debt profile

Utilities’ leverage is always an important metric to measure, as utilities generally carry a lot of debt on their books due to their expensive infrastructure. Higher leverage may mean that dividends could fall if the company experiences hard times.

At the end of 3Q16, Duke Energy (DUK) had total debt of $50 billion, and its debt-to-equity ratio comes in around 1.24x. Its debt-to-market-capitalization ratio stands at 1x.

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Leverage

Duke Energy has a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of ~5x, which is higher than the industry average. The net-debt-to-EBITDA ratio shows how many years it will take for the company to repay its debt, given its EBITDA, if its debt and EBITDA are held constant.

Southern Company’s net debt to EBITDA ratio stands at 4.4x while NextEra Energy’s (NEE) ratio is near 4x, in line with the industry average.

Debt-to-asset ratio

The debt-to-asset ratio represents the proportion of a company’s assets that are financed by debt, and it assesses the financial risk of a company. NextEra Energy has a debt-to-asset ratio of 0.4x, which is equal to Duke Energy’s ratio. Exelon (EXC) has a debt-to-asset ratio of 0.3x.

Duke Energy’s debt has significantly increased in the past couple of years, reflecting its focus on acquisitions. Its debt significantly increased after acquiring Progress Energy. NextEra Energy’s leverage is expected to rise due to its acquisition of Oncor.

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