How Does Quest Diagnostics' Debt Look Like?
Over the past three months, shares of Quest Diagnostics Inc. (NYSE: DGX) rose by 25.93%. Before we understand the importance of debt, let's look at how much debt Quest Diagnostics has.
Quest Diagnostics's Debt
Based on Quest Diagnostics’s balance sheet as of May 4, 2020, long-term debt is at $4.03 billion and current debt is at $3.00 million, amounting to $4.04 billion in total debt. Adjusted for $342.00 million in cash-equivalents, the company's net debt is at $3.69 billion.
To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Quest Diagnostics’s $12.05 billion in total assets, the debt-ratio is at 0.33. 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.
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, due to interest-payment obligations, cash-flow of a company can be impacted. Having financial leverage also allows companies to use additional capital for business operations, allowing equity owners to retain excess profit, generated by the debt capital.
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