ABBV) decreased by 4.00%. Before having a look at the importance of debt, let’s 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.
Investors look at the debt-ratio to understand how much financial leverage a company has. AbbVie has $149.53 billion in total assets, therefore making the debt-ratio 0.58. As a rule of thumb, a debt-ratio more than 1 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. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.
Why Investors Look At Debt?
Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.
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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