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Analyzing Fiat Chrysler’s Debt Position Going into 4Q17

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Fiat Chrysler’s debt position

So far in this series, we’ve looked at Fiat Chrysler’s (FCAU) 3Q17 revenues and profitability. We saw that the company’s profit margins improved due to a favorable product mix, the performance of the Maserati brand, and reduced net industrial costs. In this part, we’ll see how FCAU’s balance sheet looks after the third quarter and how it’s progressing toward its 2018 debt reduction target.

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Net industrial debt rose

At the end of 3Q17, Fiat Chrysler’s net industrial debt was 4.4 billion euros (~$5.2 billion). That reflects an increase of 4.2 billion euros (~$4.9 billion) since the end of 2Q17. The company pointed to the weakening US dollar as one of the primary reasons for this increase in net industrial debt.

Due to the seasonality factor in 3Q17, the company reported a rise of 1.1 billion euros (~$1.3 billion) in working capital requirements compared to 2Q17. Similarly, Fiat Chrysler’s 3Q17 capital expenditure rose ~2.0 billion euros (~$2.4 billion) compared to the previous quarter. Both of these factors had a negative impact on its net industrial debt in 3Q17.

Why is it important?

Fiat Chrysler has the highest debt position compared to its peers (XLY) Volkswagen (VLKAY), Ford (F), and General Motors (GM). Its higher debt position increases its risk profile because debt is a contractual obligation that a company has to fulfill, irrespective of market conditions.

FCAU’s net industrial debt has fallen significantly in the last year. The company had a net industrial debt of ~6.5 billion euros (~$7.6 billion) a year ago. The company’s progress in reducing its net industrial debt guidance could keep investor optimism alive.

Tesla (TSLA) is set to release its third-quarter results on November 1, 2017. Read Tesla’s 3Q17: Analysts’ Pre-Results Estimates to learn more.

Be sure to visit Market Realist’s Autos page to stay updated on automakers’ 3Q17 earnings.

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