Market Overview

A Look Into Bristol-Myers Squibb's Debt

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Over the past three months, shares of Bristol-Myers Squibb Inc. (NYSE: BMY) fell by 3.38%. Before we understand the importance of debt, let's look at how much debt Bristol-Myers Squibb has.

Bristol-Myers Squibb's Debt

Based on Bristol-Myers Squibb’s financial statement as of May 7, 2020, long-term debt is at $42.84 billion and current debt is at $3.86 billion, amounting to $46.71 billion in total debt. Adjusted for $15.82 billion in cash-equivalents, the company's net debt is at $30.89 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Bristol-Myers Squibb has $129.28 billion in total assets, therefore making the debt-ratio 0.36. 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.

Why Shareholders Look At Debt?

Besides equity, debt is an important factor in the capital structure of a company, and contributes to its growth. Due to its lower financing cost compared to equity, it becomes an attractive option for executives trying to raise capital.

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.

 

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