A Look Into Merck & Co's Debt

Shares of Merck & Co Inc. MRK decreased by 1.88% in the past three months. Before having a look at the importance of debt, let's look at how much debt Merck & Co has.

Merck & Co Debt

Based on Merck & Co's financial statement as of February 24, 2023, long-term debt is at $28.75 billion and current debt is at $1.95 billion, amounting to $30.69 billion in total debt. Adjusted for $12.69 billion in cash-equivalents, the company's net debt is at $18.00 billion.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of a company's debt which is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents includes cash and any liquid securities with maturity periods of 90 days or less. Total debt equals current debt plus long-term debt minus cash equivalents.

Investors look at the debt-ratio to understand how much financial leverage a company has. Merck & Co has $109.16 billion in total assets, therefore making the debt-ratio 0.28. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. A debt ratio of 25% might be higher for one industry, but average for another.

Why Debt Is Important

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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This article was generated by Benzinga's automated content engine and reviewed by an editor.