What Does Johnson & Johnson's Debt Look Like?

Shares of Johnson & Johnson JNJ fell by 8.74% in the past three months. Before having a look at the importance of debt, let us look at how much debt Johnson & Johnson has.

Johnson & Johnson's Debt

Based on Johnson & Johnson's financial statement as of October 29, 2021, long-term debt is at $30.13 billion and current debt is at $3.80 billion, amounting to $33.93 billion in total debt. Adjusted for $17.60 billion in cash-equivalents, the company's net debt is at $16.32 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 include 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. Johnson & Johnson has $179.23 billion in total assets, therefore making the debt-ratio 0.19. As a rule of thumb, a debt-ratio more than one 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 40% might be higher for one industry and average for another.

Why Debt Is Important

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.

Interest-payment obligations can impact the cash-flow of the company. 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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