Market Overview

What Does Pfizer's Debt Look Like?

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Shares of Pfizer (NYSE: PFE) rose by 5.24% in the past three months. Before we understand the importance of debt, let us look at how much debt Pfizer has.

Pfizer's Debt

Based on Pfizer’s balance sheet as of August 6, 2020, long-term debt is at $50.53 billion and current debt is at $13.08 billion, amounting to $63.61 billion in total debt. Adjusted for $1.80 billion in cash-equivalents, the company's net debt is at $61.81 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Pfizer’s $177.93 billion in total assets, the debt-ratio is at 0.36. 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.

 

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