Market Overview

Sanofi: Debt Insights

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Shares of Sanofi (NASDAQ: SNY) rose by 0.17% in the past three months. Before having a look at the importance of debt, let us look at how much debt Sanofi has.

Sanofi's Debt

Based on Sanofi’s balance sheet as of March 5, 2020, long-term debt is at $22.60 billion and current debt is at $5.11 billion, amounting to $27.71 billion in total debt. Adjusted for $10.58 billion in cash-equivalents, the company's net debt is at $17.13 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Sanofi has $126.57 billion in total assets, therefore making the debt-ratio 0.22. 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 35% might be higher for one industry and average for another.

Importance Of 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.

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.

 

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