Thermo Fisher Scientific has more debt than ever

The shares of Thermo Fisher Scientific NYSE: TMO fell by 12.96% in the past three months. Before we understand the importance of debt, let us look at how much debt Thermo Fisher Scientific has.

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Net debt is $9.68 billion, despite the fact that the company's net debt is $12.03 billion in cash-equivalents.

Let's define some of the terms we used in the paragraph above. Current debt is the portion of the company's debt that is due within 1 year, while long-term debt is the portion due in more than 1 year. Cash equivalents include cash and any liquid securities with maturity periods of 90 days or less. Total debt is the same as current debt plus long-term debt minus cash equivalents.

The debt ratio is something that shareholders look at to understand the degree of financial leverage a company has. The debt-ratio is 0.29, based on Thermo Fisher Scientific's $73.60 billion in total assets. A debt ratio of more than one indicates that a large portion of debt is funded by assets. If interest rates are to increase, the company might be at risk for default if it increases its debt-ratio. Debt-ratios vary widely across different industries. A debt ratio of 40% may be higher for one industry and normal for another.

Debt can help a company achieve growth, as it is an important factor in the capital structure of a company. Debt is an attractive option for executives because it has a relatively low financing cost than equity.

Cash-flow of a company can be impacted due to interest-payment obligations. Equity owners can retain excess profit generated by debt capital by having financial leverage, which allows companies to use additional capital for business operations.

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