Benzinga | Oct 13, 2020 07:43AM EDT

What Does Laboratory Corp's Debt Look Like?

Shares of Laboratory Corp (NYSE:LH) decreased by 0.00% in the past three months. Before having a look at the importance of debt, let us look at how much debt Laboratory Corp has.

Laboratory Corp's Debt

According to the Laboratory Corp's most recent balance sheet as reported on July 31, 2020, total debt is at $6.30 billion, with $5.50 billion in long-term debt and $799.00 million in current debt. Adjusting for $557.00 million in cash-equivalents, the company has a net debt of $5.75 billion.

To understand the degree of financial leverage a company has, investors look at the debt ratio. Considering Laboratory Corp's $17.85 billion in total assets, the debt-ratio is at 0.35. 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 25% might be higher for one industry and average for another.

Why Investors Look At Debt?

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. 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.