Abbott Laboratories (NYSE:ABT) Could Easily Take On More Debt

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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Abbott Laboratories (NYSE:ABT) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Abbott Laboratories

What Is Abbott Laboratories's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Abbott Laboratories had US$15.0b of debt in September 2024, down from US$15.7b, one year before. However, it does have US$7.79b in cash offsetting this, leading to net debt of about US$7.26b.

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NYSE:ABT Debt to Equity History January 4th 2025

How Strong Is Abbott Laboratories' Balance Sheet?

The latest balance sheet data shows that Abbott Laboratories had liabilities of US$14.9b due within a year, and liabilities of US$19.4b falling due after that. Offsetting this, it had US$7.79b in cash and US$7.05b in receivables that were due within 12 months. So its liabilities total US$19.5b more than the combination of its cash and short-term receivables.

Of course, Abbott Laboratories has a titanic market capitalization of US$196.8b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).


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