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Why U.S. Steel’s Balance Sheet Looks Healthier in 2017

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U.S. Steel’s balance sheet

Some steel companies had seen their leverage ratios worsen in 2015. The dual impact of falling earnings and negative free cash flows meant that some steel companies’ leverage ratios generated a healthy dose of concern. However, thanks to improved markets, steel companies’ balance sheets have started to look much healthier.

For instance, ArcelorMittal (MT) raised nearly $1 billion through asset sales and another $3 billion through a rights issue. U.S. Steel Corporation (X) and AK Steel (AKS) also raised fresh equity in 2016, capitalizing on the stock price surge.

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Net debt

Net debt equals total debt minus cash and cash equivalents. U.S. Steel had net debt of $1.5 billion on December 31, 2016, which is $900 million lower than the corresponding period in 2015. ArcelorMittal’s net debt fell to $11 billion on December 31, 2016, compared to $15.6 billion the year before.

Steel Dynamics’s (STLD) net debt fell ~$350 million between December 31, 2015, and December 31, 2016. Nucor (NUE) managed to reduce its net debt by $211 million over this period.

Share repurchases

Both Nucor and Steel Dynamics managed to bring down their net debt levels because of organic cash flows. Both companies repurchased their shares in 2016 while some of their peer companies were issuing shares to shore up their balance sheets. Furthermore, both NUE and STLD have invested in organic and inorganic growth during the downturn. These investments could pay off during the steel industry’s upcycle.

Along with absolute debt levels, it’s also important to look at other leverage metrics. We’ll discuss this more in the final article of this series.

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