A Look Into Thermo Fisher Scientific's Debt

Shares of Thermo Fisher Scientific Inc. TMO rose by 19.33% in the past three months. Before we understand the importance of debt, let's look at how much debt Thermo Fisher Scientific has.

Thermo Fisher Scientific's Debt

Based on Thermo Fisher Scientific’s balance sheet as of May 1, 2020, long-term debt is at $19.23 billion and current debt is at $738.00 million, amounting to $19.97 billion in total debt. Adjusted for $2.98 billion in cash-equivalents, the company's net debt is at $16.99 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Thermo Fisher Scientific has $58.69 billion in total assets, therefore making the debt-ratio 0.34. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 35% might be higher for one industry, whereas normal 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.