How Does Abbott Laboratories's Debt Look?

Shares of Abbott Laboratories Inc. ABT rose by 22.54% in the past three months. Before having a look at the importance of debt, let's look at how much debt Abbott Laboratories has.

Abbott Laboratories's Debt

According to the Abbott Laboratories’s most recent financial statement as reported on July 29, 2020, total debt is at $19.68 billion, with $18.18 billion in long-term debt and $1.50 billion in current debt. Adjusting for $4.76 billion in cash-equivalents, the company has a net debt of $14.92 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Abbott Laboratories’s $68.78 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. For example, a debt ratio of 40% 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.

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.