Over the past three months, GSK Inc. GSK increased by 19.05%. To understand a company’s price action over a period of about 3 months, it can be helpful to look at its financials. An important aspect of a company’s finances is its debt, but before we understand the meaning of debt, let’s look at how much debt GSK has.

GSK Debt

Based on GSK’s financial statements dated March 6, 2020, long-term debt is $31.30 billion and current debt is $9.18 billion for total debt of $40.48 billion. Adjusted for $6.25 billion in cash, the company’s net debt is $34.24 billion.

Let’s define some of the terms we used in the paragraph above. Current Debt is that portion of a company’s debt that falls due within one year, during Long-term liabilities is the portion due in more than 1 year. cash equivalents includes cash and all liquid securities with maturities of 90 days or less. total debt equals current liabilities plus non-current liabilities minus cash equivalents.

To understand a company’s level of financial leverage, shareholders look at the leverage ratio. Considering GSK’s total assets of $105.74 billion, the debt ratio is 0.38. In general, a debt ratio greater than 1 means that a large portion of the debt is funded by assets. As the debt ratio increases, so does the risk of default on a loan when interest rates rise. Different industries have different tolerance levels for debt ratios. A debt ratio of 25% may be higher for one industry but average for another.

meaning of debt

Debt is an important factor in a company’s capital structure and can contribute to growth. Debt typically has a relatively lower funding cost than equity, making it an attractive option for executives.

Interest payment obligations may affect the company’s cash flow. Financial leverage also allows companies to use additional capital to operate the business, allowing equity investors to retain excess profits generated by the…