CRHawk Posted April 25, 2016 Share Posted April 25, 2016 I want to look at debt when I am comparing the quality of companies and looking to invest in higher quality companies. So far, the method I like the best is to compare debt and and cash to yearly earnings. I would think this measures a companies ability to pay down debt if it wants to/ needs to. So... (Numbers based upon Value Line reports) JNJ is about 1 x E for debt, and about 2.5 x E in cash. Great! AMGN is about 3.5 E for debt, and about 4 x E for cash. Nice. AGN is about 8 x E for debt and about .2 x E for cash. RED ALERT! DEO is about 3 x E for debt, and about .2 x E in cash. Hmmm.... Not great, but probably okay for consumer staples. WTW is about 40 x E for debt and about 5 x E in cash. Zoinks! I have doubts even Oprah can fix this. Is this a reasonable way to look at debt? I started doing this because it felt like % of capital was misleading when different companies / industries have such different needs for capital. I do know I need to look at when debt is due when things are marginal. Do you have a favorite way of looking at debt? Am I misleading myself? Thanks! -Jeff Link to comment Share on other sites More sharing options...
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