Eli Lilly’s (NYSE:LLY) stock has risen 26.91 percent in the last three months. Let’s take a look at Eli Lilly’s debt before we get into the importance of debt.
The Debt of Eli Lilly
Total debt is $16.20 billion, with $16.20 billion in long-term debt and $4.90 million in current debt, according to Eli Lilly’s most recent balance sheet, which was filed on April 30, 2021. The corporation has a net debt of $13.20 billion after accounting for $3.00 billion in cash equivalents.
Let’s define some of the terminology used in the preceding paragraph. The portion of a company’s debt due within a year is called current debt, while the portion due in more than a year is called long-term debt. Cash and liquid securities with maturities of 90 days or less are considered cash equivalents. Current debt plus long-term debt minus cash equivalents equals total debt.
The debt-ratio is used by investors to determine how much financial leverage a company has. Eli Lilly’s total assets are $46.84 billion, resulting in a debt-to-asset ratio of 0.35. A debt-to-asset ratio greater than one indicates that assets are used to fund a significant percentage of debt. If interest rates rise, the danger of defaulting on loans rises as the debt-to-income ratio rises. Varying industries have different debt-ratio tolerance criteria. A debt-to-equity ratio of 40% may be excessive in one industry but typical in another.
Why Do Investors Care About Debt?
Debt is a vital part of a company’s capital structure, and it may help it grow. Debt typically has a lower financing cost than stock, making it a more appealing alternative for CEOs.
However, a company’s cash flow may be harmed as a result of interest-payment requirements. Financial leverage also allows businesses to use more money for operations, allowing equity owners to keep the excess profit earned by loan financing.
If you’re looking for equities with a low debt-to-equity ratio, look no further. Look into Benzinga Pro, a market research platform that gives investors near-instant access to hundreds of company measures, including the debt-to-equity ratio. To learn more, go here./n
