Does Marathon Petroleum Have High Debt on Its Balance Sheet?


May. 29 2019, Updated 12:16 p.m. ET

Net debt-to-adjusted EBITDA ratio

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 first quarter. The ratio was more than the average peer ratio of six American refining firms at 1.5x. The ratio represents a firm’s debt level as a multiple of its earnings.

Marathon Petroleum’s net debt-to-adjusted EBITDA ratio rose from 2.0x in the first quarter of 2018 to 3.1x in the first quarter. The increase was mainly due to the acquisition of Andeavor in the fourth quarter. The acquisition raised Marathon Petroleum’s debt 63% YoY to $28.1 billion in the first quarter. Marathon Petroleum’s cash fell 81% YoY to $0.9 billion in the first quarter.

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Total debt-to-capital ratio

In the first quarter, Marathon Petroleum’s total debt-to-capital ratio was 39%—above the industry average of 36%. The ratio shows the debt as a percentage of a company’s capital structure. 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%, 32%, and 30%, respectively, in the first quarter.

So, how does the debt position look?

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 led by higher capacities, synergies, and growth activities. The company could have better cash flows, which could be utilized to reduce debt.

Overall, Marathon Petroleum’s current debt position doesn’t look as comfortable as HollyFrontier, Valero Energy, and Phillips 66, but its debt position could improve as acquisition synergies materialize.


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