Over the past three months, Sanofi Inc. SNY increased by 20.92%. Before we take a look at what debt means, let’s look at how much debt Sanofi has.

Sanofi Debt

Based on Sanofi’s financial statements dated March 5, 2020, long-term debt is $22.60 billion and current debt is $5.11 billion, for total debt of $27.71 billion. Adjusted for $10.58 billion in cash, the company’s net debt is $17.13 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.

Shareholders look at the leverage ratio to understand how much financial leverage a company has. Sanofi has total assets of $126.57 billion, which translates to a debt ratio of 0.22. 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.

Why Debt Matters

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.

However, due to interest payment obligations, a company’s cash flow can be adversely affected. Shareholders can keep excess profits from the debt if companies use the debt for their operations.

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