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What Does AbbVie's Debt Look Like?

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Shares of AbbVie (NYSE: ABBV) decreased by 11.15% in the past three months. Before having a look at the importance of debt, let us look at how much debt AbbVie has.

AbbVie's Debt

According to the AbbVie’s most recent balance sheet as reported on August 4, 2020, total debt is at $87.43 billion, with $82.06 billion in long-term debt and $5.37 billion in current debt. Adjusting for $6.02 billion in cash-equivalents, the company has a net debt of $81.42 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering AbbVie’s $149.53 billion in total assets, the debt-ratio is at 0.58. 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 average 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.

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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