Quest Diagnostics: Debt Overview

Over the past three months, shares of Quest Diagnostics DGX fell by 5.99%. Before having a look at the importance of debt, let us look at how much debt Quest Diagnostics has.

Quest Diagnostics's Debt

According to the Quest Diagnostics’s most recent financial statement as reported on July 24, 2020, total debt is at $4.58 billion, with $4.02 billion in long-term debt and $555.00 million in current debt. Adjusting for $988.00 million in cash-equivalents, the company has a net debt of $3.59 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Quest Diagnostics has $12.99 billion in total assets, therefore making the debt-ratio 0.35. Generally speaking, a debt-ratio more than one 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. A debt ratio of 40% might be higher for one industry and normal for another.

Why Debt Is Important

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.

However, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.