A Look Into Eli Lilly's Debt

Over the past three months, shares of Eli Lilly LLY moved lower by 4.31%. Before we understand the importance of debt, let us look at how much debt Eli Lilly has.

Eli Lilly's Debt

According to the Eli Lilly’s most recent financial statement as reported on July 31, 2020, total debt is at $16.33 billion, with $15.06 billion in long-term debt and $1.26 billion in current debt. Adjusting for $2.37 billion in cash-equivalents, the company has a net debt of $13.96 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Eli Lilly has $41.97 billion in total assets, therefore making the debt-ratio 0.39. 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 25% might be higher for one industry and normal 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.

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.