Shares of Quest Diagnostics Inc. DGX increased by 6.20% in the past three months. Before having a look at the importance of debt, let's look at how much debt Quest Diagnostics has.
Quest Diagnostics's Debt
Based on Quest Diagnostics’s financial statement as of July 24, 2020, long-term debt is at $4.02 billion and current debt is at $555.00 million, amounting to $4.58 billion in total debt. Adjusted for $988.00 million in cash-equivalents, the company's net debt is at $3.59 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Quest Diagnostics’s $12.99 billion in total assets, the debt-ratio is at 0.35. 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.
Why Shareholders 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.
Interest-payment obligations can impact 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.
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