How Does Biogen's Debt Look Like?

Over the past three months, shares of Biogen Inc. (NASDAQ:BIIB) fell by 5.50%. Before having a look at the importance of debt, let's look at how much debt Biogen has.

Biogen's Debt

Based on Biogen’s balance sheet as of July 22, 2020, long-term debt is at $7.42 billion and current debt is at $0.00, amounting to $7.42 billion in total debt. Adjusted for $2.38 billion in cash-equivalents, the company's net debt is at $5.04 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Biogen’s $25.51 billion in total assets, the debt-ratio is at 0.29. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 35% might be higher for one industry, whereas average for another.

Importance of Debt

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

Interest-payment obligations can impact the cash-flow of the company. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.