Market Overview

Gilead Sciences's Debt Overview

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Shares of Gilead Sciences (NASDAQ: GILD) moved lower by 16.77% in the past three months. Before having a look at the importance of debt, let us look at how much debt Gilead Sciences has.

Gilead Sciences's Debt

According to the Gilead Sciences’s most recent financial statement as reported on August 6, 2020, total debt is at $24.10 billion, with $21.10 billion in long-term debt and $3.00 billion in current debt. Adjusting for $6.75 billion in cash-equivalents, the company has a net debt of $17.36 billion.

To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Gilead Sciences’s $55.93 billion in total assets, the debt-ratio is at 0.43. As a rule of thumb, a debt-ratio more than one indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. A debt ratio of 25% might be higher for one industry and normal 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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