How Does Cardinal Health's Debt Look?

Shares of Cardinal Health Inc. CAH moved higher by 7.47% in the past three months. Before having a look at the importance of debt, let's look at how much debt Cardinal Health has.

Cardinal Health's Debt

Based on Cardinal Health’s balance sheet as of May 11, 2020, long-term debt is at $6.75 billion and current debt is at $508.00 million, amounting to $7.26 billion in total debt. Adjusted for $2.33 billion in cash-equivalents, the company's net debt is at $4.93 billion.

Investors look at the debt-ratio to understand how much financial leverage a company has. Cardinal Health has $41.15 billion in total assets, therefore making the debt-ratio 0.18. 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 25% might be higher for one industry, whereas normal for another.

Why Investors Look At 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.

However, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.