Over the past three months, shares of AstraZeneca AZN increased by 6.37%. Before we understand the importance of debt, let us look at how much debt AstraZeneca has.
AstraZeneca's Debt
Based on AstraZeneca’s financial statement as of July 28, 2016, long-term debt is at $16.95 billion and current debt is at $2.06 billion, amounting to $19.00 billion in total debt. Adjusted for $3.92 billion in cash-equivalents, the company's net debt is at $15.09 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. AstraZeneca has $64.42 billion in total assets, therefore making the debt-ratio 0.3. As a rule of thumb, a debt-ratio more than one 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 and average for another.
Why Debt Is Important
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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