U.S. Steel or AK Steel: Which Has Higher Financial Leverage?



Financial leverage

Previously in this series, we looked at several financial metrics like interest coverage and debt-to-equity ratios to analyze steel companies’ financial leverage ratios (HYG). Along with these ratios, investors and credit rating agencies also look at the net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio. The ratio helps us gauge a company’s debt levels compared to its earnings. In this part, we’ll look at steel companies’ net debt-to-EBITDA ratios based on their TTM (trailing 12-month) earnings.

Comparative analysis

Steel Dynamics has the lowest financial leverage in our coverage of steel stocks based on the net debt-to-TTM EBITDA. Nucor’s (NUE) financial leverage ratio is slightly higher compared to Steel Dynamics, as you can see in the above chart. We should remember that Nucor’s net debt rose slightly in the most recent quarter. The company generated negative free cash flows in the quarter due to working capital build up. You can read A Comparative Analysis of Steel Companies’ 2Q17 Earnings to analyze steel companies’ 2Q17 cash flows.

ArcelorMittal (MT) has a net debt-to-EBITDA multiple of 1.50x based on its TTM EBITDA. The company’s leverage ratios look comfortable based on the metric. The company’s financial leverage is the lowest since 2009. It’s looking for an “investment grade” credit rating, according to CEO Lakshmi Mittal.

U.S. Steel

U.S. Steel (X) has a net debt-to-EBITDA ratio of 1.53x, while AK Steel’s (AKS) net debt-to-EBITDA ratio is 2.62x based on its TTM financials. Notably, AK Steel has the highest financial leverage in our coverage of steel stocks based on most financial metrics.

Visit Market Realist’s Steel page for ongoing updates on the steel industry.

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