Analysis of Solvency Ratios
Solvency ratios also known as long-term debt ratios measure a company ability to meet long-term obligations.
Solvency Ratios (Summary)
Debt Ratios
Coverage Ratios
Baxter International Inc., solvency ratios
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
The solvency profile between 2011 and 2015 is characterized by a period of increasing leverage followed by a significant deleveraging event in 2015, coupled with a consistent and steep decline in debt coverage capacity.
- Leverage and Capital Structure
- A steady increase in reliance on debt is observed from 2011 through 2014. The debt to equity ratio rose from 0.79 to a peak of 1.15, while the debt to assets ratio increased from 0.27 to 0.36 over the same period. Financial leverage followed a similar trajectory, peaking at 3.19 in 2014. This trend indicates an expansion of the company's debt burden relative to its equity and asset base during these four years.
- A sharp reversal occurred in 2015, where all leverage metrics decreased significantly. The debt to equity ratio fell to 0.74, and financial leverage dropped to 2.37, the lowest level in the analyzed period. This suggests a substantial restructuring of the balance sheet or a significant injection of equity.
- Debt Serviceability
- Despite the improvement in leverage ratios in 2015, the ability to service debt obligations deteriorated continuously throughout the five-year period. The interest coverage ratio experienced a severe decline, falling from 31.53 in 2011 to 3.93 in 2015.
- Similarly, the fixed charge coverage ratio showed a consistent downward trend, decreasing from 10.52 in 2011 to 2.30 in 2015. This indicates that the margin of safety for meeting fixed financial obligations has narrowed considerably over time.
In summary, while the company successfully reduced its overall leverage ratios by the end of 2015, the persistent decline in both interest and fixed charge coverage suggests a weakening operational capacity to support its debt obligations relative to previous years.
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Debt to Equity
Baxter International Inc., debt to equity calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 1,775) | 913) | 181) | 27) | 256) | |
| Current maturities of long-term debt and lease obligations | 810) | 786) | 859) | 323) | 190) | |
| Long-term debt and lease obligations, excluding current maturities | 3,935) | 7,606) | 8,126) | 5,580) | 4,749) | |
| Total debt | 6,520) | 9,305) | 9,166) | 5,930) | 5,195) | |
| Total Baxter shareholders’ equity | 8,846) | 8,120) | 8,463) | 6,938) | 6,585) | |
| Solvency Ratio | ||||||
| Debt to equity1 | 0.74 | 1.15 | 1.08 | 0.85 | 0.79 | |
| Benchmarks | ||||||
| Debt to Equity, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Debt to equity = Total debt ÷ Total Baxter shareholders’ equity
= 6,520 ÷ 8,846 = 0.74
2 Click competitor name to see calculations.
The financial data indicates a period of increasing leverage from 2011 to 2014, followed by a significant deleveraging phase in 2015. The solvency profile shifted from a conservative position to a more aggressive debt-funded structure before returning to a lower risk level by the end of the analyzed period.
- Total Debt Evolution
- Total debt exhibited a consistent upward trajectory between 2011 and 2014, rising from 5,195 million US$ to a peak of 9,305 million US$. This represents a substantial increase in liabilities over a four-year span. However, a sharp reduction occurred in 2015, with total debt falling to 6,520 million US$, indicating a major debt repayment or restructuring event.
- Shareholders' Equity Growth
- Total shareholders' equity maintained a generally positive growth trend, increasing from 6,585 million US$ in 2011 to 8,846 million US$ by 2015. A minor contraction was observed in 2014, where equity decreased to 8,120 million US$, although it recovered to its highest point in the subsequent year.
- Debt to Equity Ratio Analysis
- The debt to equity ratio reflects the coinciding movements of liabilities and equity. The ratio rose steadily from 0.79 in 2011 to a peak of 1.15 in 2014, signaling a period where the company relied more heavily on debt financing relative to equity. By 2015, the ratio declined to 0.74, the lowest value in the five-year sequence, confirming a strengthened solvency position and a significant reduction in financial leverage.
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Debt to Capital
Baxter International Inc., debt to capital calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 1,775) | 913) | 181) | 27) | 256) | |
| Current maturities of long-term debt and lease obligations | 810) | 786) | 859) | 323) | 190) | |
| Long-term debt and lease obligations, excluding current maturities | 3,935) | 7,606) | 8,126) | 5,580) | 4,749) | |
| Total debt | 6,520) | 9,305) | 9,166) | 5,930) | 5,195) | |
| Total Baxter shareholders’ equity | 8,846) | 8,120) | 8,463) | 6,938) | 6,585) | |
| Total capital | 15,366) | 17,425) | 17,629) | 12,868) | 11,780) | |
| Solvency Ratio | ||||||
| Debt to capital1 | 0.42 | 0.53 | 0.52 | 0.46 | 0.44 | |
| Benchmarks | ||||||
| Debt to Capital, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Debt to capital = Total debt ÷ Total capital
= 6,520 ÷ 15,366 = 0.42
2 Click competitor name to see calculations.
The solvency profile between 2011 and 2015 is characterized by a period of leverage expansion followed by a significant deleveraging event in the final year. The overall trend indicates a gradual increase in the reliance on debt to fund capital through 2014, which was abruptly reversed in 2015.
- Total Debt Trends
- Total debt experienced a consistent upward trajectory from 2011 to 2014, rising from 5,195 million to 9,305 million. A particularly sharp increase is noted between 2012 and 2013, where debt grew by approximately 54%. This trend reversed in 2015, with total debt contracting to 6,520 million.
- Total Capital Evolution
- Total capital increased from 11,780 million in 2011 to a peak of 17,629 million in 2013. Following this peak, capital levels remained relatively stable in 2014 before decreasing to 15,366 million in 2015, a decline that corresponds with the reduction in total debt.
- Debt to Capital Ratio Analysis
- The debt to capital ratio rose steadily from 0.44 in 2011 to a maximum of 0.53 in 2014, reflecting an increasing proportion of debt within the total capital structure. However, by December 31, 2015, the ratio dropped to 0.42, the lowest point in the five-year period, indicating a shift toward a more conservative solvency position.
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Debt to Assets
Baxter International Inc., debt to assets calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Short-term debt | 1,775) | 913) | 181) | 27) | 256) | |
| Current maturities of long-term debt and lease obligations | 810) | 786) | 859) | 323) | 190) | |
| Long-term debt and lease obligations, excluding current maturities | 3,935) | 7,606) | 8,126) | 5,580) | 4,749) | |
| Total debt | 6,520) | 9,305) | 9,166) | 5,930) | 5,195) | |
| Total assets | 20,975) | 25,917) | 25,869) | 20,390) | 19,073) | |
| Solvency Ratio | ||||||
| Debt to assets1 | 0.31 | 0.36 | 0.35 | 0.29 | 0.27 | |
| Benchmarks | ||||||
| Debt to Assets, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Debt to assets = Total debt ÷ Total assets
= 6,520 ÷ 20,975 = 0.31
2 Click competitor name to see calculations.
The analysis of solvency ratios between 2011 and 2015 reveals a period of increasing financial leverage followed by a notable contraction in both debt and asset levels.
- Debt and Asset Growth (2011–2014)
- A consistent upward trend in total debt is observed from December 31, 2011, through December 31, 2014, with debt rising from US$ 5,195 million to US$ 9,305 million. During the same period, total assets expanded from US$ 19,073 million to US$ 25,917 million. This simultaneous growth resulted in a steady increase in the debt to assets ratio, which climbed from 0.27 to a peak of 0.36, indicating that the expansion of the asset base was increasingly financed through debt.
- Balance Sheet Contraction and Deleveraging (2014–2015)
- A significant reversal occurred by December 31, 2015, characterized by a substantial decrease in total debt to US$ 6,520 million and a reduction in total assets to US$ 20,975 million. The debt to assets ratio consequently declined to 0.31. This pattern suggests a strategic shift toward deleveraging and a contraction of the balance sheet, effectively reducing the proportion of assets funded by debt compared to the 2014 peak.
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Financial Leverage
Baxter International Inc., financial leverage calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Total assets | 20,975) | 25,917) | 25,869) | 20,390) | 19,073) | |
| Total Baxter shareholders’ equity | 8,846) | 8,120) | 8,463) | 6,938) | 6,585) | |
| Solvency Ratio | ||||||
| Financial leverage1 | 2.37 | 3.19 | 3.06 | 2.94 | 2.90 | |
| Benchmarks | ||||||
| Financial Leverage, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Financial leverage = Total assets ÷ Total Baxter shareholders’ equity
= 20,975 ÷ 8,846 = 2.37
2 Click competitor name to see calculations.
Between 2011 and 2015, the capital structure exhibited a period of progressive leverage growth followed by a significant contraction in the final year. The relationship between total assets and shareholders' equity indicates a shift in the company's solvency profile and asset base management over this five-year interval.
- Asset and Equity Dynamics
- Total assets grew from 19,073 million US$ in 2011 to a peak of 25,917 million US$ in 2014, before experiencing a sharp decline to 20,975 million US$ in 2015. Shareholders' equity followed a generally positive trajectory, rising from 6,585 million US$ in 2011 to 8,846 million US$ in 2015, with only a slight decrease observed in 2014.
- Financial Leverage Trends
- The financial leverage ratio increased steadily from 2.90 in 2011 to 3.19 in 2014, indicating an increasing reliance on debt to finance the expansion of the asset base. This trend was reversed in 2015, where the ratio dropped significantly to 2.37, the lowest point in the analyzed period.
- Analysis of Solvency Shift
- The marked reduction in financial leverage in 2015 is attributable to the simultaneous decrease in total assets and the increase in shareholders' equity. This movement suggests a deleveraging event, likely driven by asset divestitures or a strategic reduction in liabilities, which resulted in a more conservative capital structure and improved solvency margins by the end of 2015.
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Interest Coverage
Baxter International Inc., interest coverage calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income attributable to Baxter | 968) | 2,497) | 2,012) | 2,326) | 2,224) | |
| Add: Net income attributable to noncontrolling interest | —) | —) | —) | —) | 32) | |
| Less: Income from discontinued operations, net of tax | 575) | 551) | —) | —) | —) | |
| Add: Income tax expense | 35) | 493) | 537) | 563) | 553) | |
| Add: Interest expense | 146) | 167) | 155) | 113) | 92) | |
| Earnings before interest and tax (EBIT) | 574) | 2,606) | 2,704) | 3,002) | 2,901) | |
| Solvency Ratio | ||||||
| Interest coverage1 | 3.93 | 15.60 | 17.45 | 26.57 | 31.53 | |
| Benchmarks | ||||||
| Interest Coverage, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Interest coverage = EBIT ÷ Interest expense
= 574 ÷ 146 = 3.93
2 Click competitor name to see calculations.
The financial data indicates a significant deterioration in the solvency position between 2011 and 2015, characterized by a consistent decline in the capacity to cover interest obligations from operating profits.
- Earnings Before Interest and Tax (EBIT)
- Operating earnings remained relatively stable from 2011 through 2014, peaking at US$ 3,002 million in 2012 and maintaining a baseline above US$ 2,600 million. However, a severe contraction occurred in 2015, with EBIT falling to US$ 574 million, representing a precipitous drop in the funds available for debt servicing.
- Interest Expense
- Debt servicing costs exhibited a steady upward trend for the majority of the period, increasing from US$ 92 million in 2011 to a peak of US$ 167 million in 2014. A marginal decrease to US$ 146 million was recorded in 2015, though costs remained substantially higher than the initial 2011 levels.
- Interest Coverage Ratio
- A continuous downward trend is observed in the interest coverage ratio, which declined from 31.53 in 2011 to 3.93 in 2015. While the ratio remained comfortably high through 2014, the collapse in EBIT during 2015 led to an acute erosion of the safety margin. This trajectory indicates a transition from a position of extreme solvency to one of significantly heightened financial vulnerability.
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Fixed Charge Coverage
Baxter International Inc., fixed charge coverage calculation, comparison to benchmarks
| Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net income attributable to Baxter | 968) | 2,497) | 2,012) | 2,326) | 2,224) | |
| Add: Net income attributable to noncontrolling interest | —) | —) | —) | —) | 32) | |
| Less: Income from discontinued operations, net of tax | 575) | 551) | —) | —) | —) | |
| Add: Income tax expense | 35) | 493) | 537) | 563) | 553) | |
| Add: Interest expense | 146) | 167) | 155) | 113) | 92) | |
| Earnings before interest and tax (EBIT) | 574) | 2,606) | 2,704) | 3,002) | 2,901) | |
| Add: Operating lease rent expense | 184) | 250) | 214) | 202) | 203) | |
| Earnings before fixed charges and tax | 758) | 2,856) | 2,918) | 3,204) | 3,104) | |
| Interest expense | 146) | 167) | 155) | 113) | 92) | |
| Operating lease rent expense | 184) | 250) | 214) | 202) | 203) | |
| Fixed charges | 330) | 417) | 369) | 315) | 295) | |
| Solvency Ratio | ||||||
| Fixed charge coverage1 | 2.30 | 6.85 | 7.91 | 10.17 | 10.52 | |
| Benchmarks | ||||||
| Fixed Charge Coverage, Competitors2 | ||||||
| Abbott Laboratories | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
1 2015 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 758 ÷ 330 = 2.30
2 Click competitor name to see calculations.
The solvency profile from 2011 to 2015 exhibits a significant deterioration in the ability to service fixed obligations. A consistent downward trend in the coverage ratio indicates a weakening financial cushion, culminating in a sharp contraction by the end of the observed period.
- Earnings before fixed charges and tax
- Earnings remained relatively stable between 2011 and 2014, peaking at 3,204 million USD in 2012 before slightly declining to 2,856 million USD in 2014. However, a precipitous decline occurred in 2015, with earnings falling to 758 million USD, representing a substantial contraction of approximately 73% compared to the prior year.
- Fixed charges
- Fixed obligations experienced a steady increase for the first four years, rising from 295 million USD in 2011 to 417 million USD in 2014. A reversal occurred in 2015, with charges decreasing to 330 million USD, although this reduction was not sufficient to compensate for the simultaneous collapse in earnings.
- Fixed charge coverage ratio
- The coverage ratio declined monotonically over the five-year span. From a high of 10.52 in 2011, the ratio eroded to 6.85 by 2014. The most critical decline occurred in 2015, where the ratio plummeted to 2.30. This trajectory reflects a marked reduction in the margin of safety available to meet fixed financial commitments.
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