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Is Marathon Petroleum’s Debt Position Comfortable?

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Marathon Petroleum’s debt

In this part, we’ll discuss Marathon Petroleum’s (MPC) debt position.

Marathon Petroleum’s net debt-to-adjusted EBITDA ratio was 3.1x in the fourth quarter. The company’s ratio is higher than the average peer ratio of 1.4x. The peer average considers six US refining firms. The ratio represents a firm’s debt level as a multiple of its earnings.

In the fourth quarter, Marathon Petroleum’s total debt-to-capital ratio was 38%. The ratio was higher than the industry average of 35%. Usually, everything else being equal, a lower ratio signifies a healthier debt position and a better ability to face tough times. HollyFrontier (HFC), Valero Energy (VLO), and Phillips 66 (PSX) had total debt-to-capital ratios of 27%, 29%, and 29%, respectively, in the fourth quarter.

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Net debt-to-adjusted EBITDA trend

Marathon Petroleum’s net debt-to-adjusted EBITDA ratio rose from 1.6x in the fourth quarter of 2017 to 3.1x in the fourth quarter. The increase was mainly due to the acquisition of Andeavor in the fourth quarter. Marathon Petroleum’s debt rose 113% YoY to $27.5 billion in the fourth quarter. Marathon Petroleum’s cash fell 44% YoY to $1.7 billion in the quarter.

How does the debt position look?

Both of Marathon Petroleum’s debt ratios were higher than the peer average, which isn’t a favorable scenario.

Going forward, Marathon Petroleum is expected to see higher earnings due to higher capacities, synergies, and growth activities. The company might have better cash flows, which could be utilized to reduce its debt.

Marathon Petroleum’s current debt position doesn’t look as comfortable as its peers. The company’s debt position could improve as acquisition synergies materialize.

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