According to AbbVie’s most recent balance sheet released August 4, 2020, total debt stands at $87.43 billion, with $82.06 billion in long-term debt and $5.37 billion in debt. current. After adjusting for $6.02 billion in cash equivalents, the company has net debt of $81.42 billion.
Investors look at the debt-to-equity ratio to understand a company’s financial leverage. AbbVie has total assets of $149.53 billion, bringing the debt ratio to 0.58. Generally, a leverage ratio above 1 indicates that a considerable portion of the debt is financed by assets. A higher debt-to-equity ratio may also imply that the company could be at risk of default if interest rates were to rise. However, debt ratios vary widely from industry to industry. For example, a debt ratio of 35% may be higher for one industry, while normal for another.
Why do investors watch debt?
Debt is an important factor in a company’s capital structure and can help it achieve growth. Debt typically has a relatively lower cost of funding than equity, making it an attractive option for executives.
Interest payment obligations can impact the company’s cash flow. Equity holders can retain excess profits, generated by debt capital, when companies use debt capital for their business operations.
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