CVS Health's Debt Overview

Over the past three months, shares of CVS Health Inc. CVS fell by 7.39%. Before having a look at the importance of debt, let's look at how much debt CVS Health has.

CVS Health's Debt

Based on CVS Health's financial statement as of August 3, 2022, long-term debt is at $50.80 billion and current debt is at $4.02 billion, amounting to $54.82 billion in total debt. Adjusted for $12.12 billion in cash-equivalents, the company's net debt is at $42.70 billion.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents includes cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. CVS Health has $230.28 billion in total assets, therefore making the debt-ratio 0.24. Generally speaking, a debt-ratio more than 1 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, but average for another.

Why Shareholders Look At 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.

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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This article was generated by Benzinga's automated content engine and reviewed by an editor.