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Over the past three months, shares of Thermo Fisher Scientific Inc. (NYSE: TMO) rose by 24.23%. Before having a look at the importance of debt, let's look at how much debt Thermo Fisher Scientific has.
Thermo Fisher Scientific's Debt
According to the Thermo Fisher Scientific’s most recent balance sheet as reported on May 1, 2020, total debt is at $19.97 billion, with $19.23 billion in long-term debt and $738.00 million in current debt. Adjusting for $2.98 billion in cash-equivalents, the company has a net debt of $16.99 billion.
To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Thermo Fisher Scientific’s $58.69 billion in total assets, the debt-ratio is at 0.34. 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. A debt ratio of 35% might be higher for one industry, whereas average 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.
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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