BDX) fell by 1.87%. Before having a look at the importance of debt, let’s look at how much debt Becton, Dickinson has.
Becton, Dickinson’s Debt
Based on Becton, Dickinson’s balance sheet as of May 7, 2020, long-term debt is at $16.81 billion and current debt is at $4.36 billion, amounting to $21.17 billion in total debt. Adjusted for $2.35 billion in cash-equivalents, the company’s net debt is at $18.82 billion.
To understand the degree of financial leverage a company has, shareholders look at the debt ratio. Considering Becton, Dickinson’s $53.52 billion in total assets, the debt-ratio is at 0.4. 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. For example, a debt ratio of 40% might be higher for one industry, whereas normal for another.
Importance of 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.