Benzinga | Aug 5, 2020 09:27AM EDT

AmerisourceBergen's Debt Overview

Over the past three months, shares of AmerisourceBergen Inc. (NYSE:ABC) moved higher by 19.15%. Before we understand the importance of debt, let's look at how much debt AmerisourceBergen has.

AmerisourceBergen's Debt

Based on AmerisourceBergen's balance sheet as of May 7, 2020, long-term debt is at $3.62 billion and current debt is at $522.81 million, amounting to $4.15 billion in total debt. Adjusted for $3.69 billion in cash-equivalents, the company's net debt is at $453.26 million.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering AmerisourceBergen's $42.04 billion in total assets, the debt-ratio is at 0.1. 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 40% might be higher for one industry, whereas 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.

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.