A Look Into Pfizer's Debt

Over the past three months, shares of Pfizer Inc. PFE fell by 3.57%. Before having a look at the importance of debt, let's look at how much debt Pfizer has.

Pfizer's Debt

Based on Pfizer’s balance sheet as of May 7, 2020, long-term debt is at $36.28 billion and current debt is at $16.01 billion, amounting to $52.29 billion in total debt. Adjusted for $2.15 billion in cash-equivalents, the company's net debt is at $50.14 billion.

Shareholders look at the debt-ratio to understand how much financial leverage a company has. Pfizer has $166.34 billion in total assets, therefore making the debt-ratio 0.31. 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 40% 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, 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.