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
McKesson Corp., solvency ratios
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
The analysis of solvency ratios reveals a period of strategic increase in financial leverage between 2013 and 2015, followed by a clear trend toward deleveraging by 2016. Despite a significant rise in debt-related metrics during the mid-period, the company maintained a strong capacity to meet its financial obligations, as evidenced by robust coverage ratios.
- Debt and Leverage Metrics
- A notable escalation in debt levels occurred between 2013 and 2014, with the debt to equity ratio increasing from 0.69 to 1.26. This trend was mirrored in the debt to capital and debt to assets ratios, which peaked in 2014 at 0.56 and 0.21, respectively. Financial leverage rose consistently from 4.28 in 2011 to a peak of 6.73 in 2015. However, by March 31, 2016, these metrics began to normalize, with the debt to equity ratio retreating to 0.91 and the debt to assets ratio returning to 0.14, suggesting a shift toward a more conservative capital structure.
- Debt Service Coverage
- The company demonstrated strong solvency through its coverage ratios. Interest coverage remained high throughout the period, dipping slightly to 7.92 in 2014 before reaching a period high of 10.21 in 2016, indicating that earnings grew faster than interest obligations. The fixed charge coverage ratio experienced a gradual decline from 5.31 in 2011 to a low of 4.26 in 2015, before recovering to 5.13 in 2016, confirming a sustained ability to cover both interest and fixed charges.
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Debt to Equity
McKesson Corp., debt to equity calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings | 7) | 135) | 346) | —) | 400) | —) | |
| Current portion of long-term debt | 1,612) | 1,529) | 1,424) | 352) | 508) | 417) | |
| Long-term debt, excluding current portion | 6,535) | 8,180) | 8,949) | 4,521) | 3,072) | 3,587) | |
| Total debt | 8,154) | 9,844) | 10,719) | 4,873) | 3,980) | 4,004) | |
| Total McKesson Corporation stockholders’ equity | 8,924) | 8,001) | 8,522) | 7,070) | 6,831) | 7,220) | |
| Solvency Ratio | |||||||
| Debt to equity1 | 0.91 | 1.23 | 1.26 | 0.69 | 0.58 | 0.55 | |
| Benchmarks | |||||||
| Debt to Equity, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Debt to equity = Total debt ÷ Total McKesson Corporation stockholders’ equity
= 8,154 ÷ 8,924 = 0.91
2 Click competitor name to see calculations.
The solvency profile from 2011 to 2016 is characterized by a significant spike in leverage peaking in 2014, followed by a period of deleveraging. While equity levels remained relatively stable with a general upward trajectory, the volatility in total debt drove the primary fluctuations in the debt-to-equity ratio.
- Debt to Equity Ratio Trend
- The ratio exhibited a gradual increase from 0.55 in 2011 to 0.69 in 2013. A sharp escalation occurred in 2014, where the ratio reached a peak of 1.26, indicating that total debt exceeded stockholders' equity. This peak was followed by a steady reduction, concluding at 0.91 by March 31, 2016.
- Total Debt Volatility
- Total debt remained relatively stable between 2011 and 2012, before increasing to 4,873 million in 2013. A substantial increase is observed in 2014, with debt rising to 10,719 million, more than doubling the 2013 balance. From 2014 onward, a consistent downward trend occurred, with debt levels decreasing to 9,844 million in 2015 and further to 8,154 million in 2016.
- Stockholders' Equity Performance
- Equity demonstrated consistent growth over the analyzed period. Despite a minor decline in 2012 to 6,831 million, the balance grew to 8,924 million by 2016. This growth in the equity base acted as a stabilizing factor, contributing to the reduction of the debt-to-equity ratio during the final two years of the period.
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Debt to Capital
McKesson Corp., debt to capital calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings | 7) | 135) | 346) | —) | 400) | —) | |
| Current portion of long-term debt | 1,612) | 1,529) | 1,424) | 352) | 508) | 417) | |
| Long-term debt, excluding current portion | 6,535) | 8,180) | 8,949) | 4,521) | 3,072) | 3,587) | |
| Total debt | 8,154) | 9,844) | 10,719) | 4,873) | 3,980) | 4,004) | |
| Total McKesson Corporation stockholders’ equity | 8,924) | 8,001) | 8,522) | 7,070) | 6,831) | 7,220) | |
| Total capital | 17,078) | 17,845) | 19,241) | 11,943) | 10,811) | 11,224) | |
| Solvency Ratio | |||||||
| Debt to capital1 | 0.48 | 0.55 | 0.56 | 0.41 | 0.37 | 0.36 | |
| Benchmarks | |||||||
| Debt to Capital, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Debt to capital = Total debt ÷ Total capital
= 8,154 ÷ 17,078 = 0.48
2 Click competitor name to see calculations.
The solvency profile from 2011 to 2016 is characterized by a period of stability followed by a significant increase in leverage and a subsequent phase of reduction. Between 2011 and 2013, the debt to capital ratio remained relatively low, exhibiting a gradual increase from 0.36 to 0.41.
- Total Debt Trends
- Total debt remained stable between 2011 and 2012 before increasing to 4,873 million US dollars in 2013. A substantial surge occurred in 2014, where debt reached a peak of 10,719 million US dollars. Following this peak, a consistent downward trend is observed, with total debt declining to 8,154 million US dollars by March 31, 2016.
- Total Capital Fluctuations
- Total capital movements closely mirrored those of total debt. After a slight dip in 2012, capital expanded significantly in 2014 to reach 19,241 million US dollars. This figure subsequently contracted over the following two years, ending at 17,078 million US dollars in 2016.
- Debt to Capital Ratio Analysis
- The debt to capital ratio experienced a sharp increase in 2014, peaking at 0.56, which indicates a period of heightened financial leverage. This ratio remained nearly flat in 2015 at 0.55 before declining to 0.48 in 2016. This overall movement suggests a shift toward a more conservative capital structure following the expansion observed in 2014.
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Debt to Assets
McKesson Corp., debt to assets calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Short-term borrowings | 7) | 135) | 346) | —) | 400) | —) | |
| Current portion of long-term debt | 1,612) | 1,529) | 1,424) | 352) | 508) | 417) | |
| Long-term debt, excluding current portion | 6,535) | 8,180) | 8,949) | 4,521) | 3,072) | 3,587) | |
| Total debt | 8,154) | 9,844) | 10,719) | 4,873) | 3,980) | 4,004) | |
| Total assets | 56,563) | 53,870) | 51,759) | 34,786) | 33,093) | 30,886) | |
| Solvency Ratio | |||||||
| Debt to assets1 | 0.14 | 0.18 | 0.21 | 0.14 | 0.12 | 0.13 | |
| Benchmarks | |||||||
| Debt to Assets, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Debt to assets = Total debt ÷ Total assets
= 8,154 ÷ 56,563 = 0.14
2 Click competitor name to see calculations.
The solvency profile between 2011 and 2016 is characterized by a period of initial stability, a significant surge in leverage during the 2014 fiscal year, and a subsequent trend toward deleveraging. The overall trajectory indicates a strategic expansion of the balance sheet followed by a disciplined reduction of debt relative to total assets.
- Debt to Assets Ratio Trend
- The ratio remained relatively stable between 2011 and 2013, fluctuating slightly between 0.12 and 0.14. A sharp increase occurred in 2014, where the ratio peaked at 0.21, representing the highest level of leverage in the analyzed period. Following this peak, the ratio declined to 0.18 in 2015 and further to 0.14 in 2016, returning to levels consistent with the 2011-2013 baseline.
- Total Asset Growth
- Assets exhibited a consistent upward trend throughout the six-year period. A notable acceleration in growth is observed between March 31, 2013, and March 31, 2014, where total assets increased from 34,786 million to 51,759 million. This expansion continued through 2016, reaching a terminal value of 56,563 million, indicating a substantial increase in the organization's resource base.
- Total Debt Dynamics
- Debt levels were stable at approximately 4 billion between 2011 and 2012, with a moderate increase to 4,873 million in 2013. A significant spike is observed in 2014, with total debt rising to 10,719 million. This suggests a period of aggressive financing. However, the subsequent two years show a steady reduction in total debt, falling to 9,844 million in 2015 and 8,154 million in 2016, demonstrating a concerted effort to reduce absolute liabilities.
- Solvency Correlation
- The correlation between the spike in total assets and the spike in total debt in 2014 suggests that a major acquisition or capital investment was financed through debt. Because total assets grew significantly more than the debt ratio in the following years, the solvency position improved, resulting in a lowered debt-to-asset ratio by 2016 despite absolute debt remaining higher than pre-2014 levels.
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Financial Leverage
McKesson Corp., financial leverage calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Total assets | 56,563) | 53,870) | 51,759) | 34,786) | 33,093) | 30,886) | |
| Total McKesson Corporation stockholders’ equity | 8,924) | 8,001) | 8,522) | 7,070) | 6,831) | 7,220) | |
| Solvency Ratio | |||||||
| Financial leverage1 | 6.34 | 6.73 | 6.07 | 4.92 | 4.84 | 4.28 | |
| Benchmarks | |||||||
| Financial Leverage, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Financial leverage = Total assets ÷ Total McKesson Corporation stockholders’ equity
= 56,563 ÷ 8,924 = 6.34
2 Click competitor name to see calculations.
The financial position between March 31, 2011, and March 31, 2016, is characterized by a significant expansion of the asset base and a corresponding increase in financial leverage. While the company grew its total assets substantially, the growth in stockholders' equity did not keep pace, resulting in a higher dependency on debt to finance operations and acquisitions.
- Asset Growth and Expansion
- Total assets exhibited a strong upward trajectory, increasing from 30,886 million US dollars in 2011 to 56,563 million US dollars in 2016. A particularly sharp acceleration occurred between March 31, 2013, and March 31, 2014, where assets rose from 34,786 million to 51,759 million US dollars, representing a substantial increase in the company's balance sheet size within a single fiscal year.
- Equity Trends
- Stockholders' equity remained relatively stagnant compared to asset growth. Equity levels fluctuated between 6,831 million and 8,924 million US dollars over the period. The slow growth in equity, coupled with occasional declines—such as between 2014 and 2015—indicates that asset expansion was not primarily funded through retained earnings or new equity issuances.
- Financial Leverage Progression
- The financial leverage ratio increased steadily from 4.28 in 2011 to a peak of 6.73 in 2015, before slightly moderating to 6.34 in 2016. The most pronounced rise in leverage occurred between 2013 and 2015, coinciding with the period of most rapid asset growth. This trend indicates an aggressive shift toward a more leveraged capital structure, increasing the company's solvency risk profile over the analyzed six-year period.
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Interest Coverage
McKesson Corp., interest coverage calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net income attributable to McKesson Corporation | 2,258) | 1,476) | 1,263) | 1,338) | 1,403) | 1,202) | |
| Add: Net income attributable to noncontrolling interest | 52) | 67) | (5) | —) | —) | —) | |
| Less: Income (loss) from discontinued operations, net of tax | (32) | (299) | (96) | —) | —) | 72) | |
| Add: Income tax expense | 908) | 815) | 742) | 581) | 516) | 505) | |
| Add: Interest expense | 353) | 374) | 303) | 240) | 251) | 222) | |
| Earnings before interest and tax (EBIT) | 3,603) | 3,031) | 2,399) | 2,159) | 2,170) | 1,857) | |
| Solvency Ratio | |||||||
| Interest coverage1 | 10.21 | 8.10 | 7.92 | 9.00 | 8.65 | 8.36 | |
| Benchmarks | |||||||
| Interest Coverage, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Interest coverage = EBIT ÷ Interest expense
= 3,603 ÷ 353 = 10.21
2 Click competitor name to see calculations.
Analysis of the solvency indicators reveals a strong and stable ability to service debt obligations between 2011 and 2016. The overarching trend is characterized by substantial growth in operating profitability, which has generally outpaced the increase in financing costs.
- Earnings Before Interest and Tax (EBIT) Trends
- A consistent upward trajectory in EBIT is observed, increasing from 1,857 million USD in 2011 to 3,603 million USD by 2016. This represents a near doubling of operating earnings over the five-year span, reflecting significant growth in core operational profitability.
- Interest Expense Analysis
- Interest expenses exhibited a moderate increase, rising from 222 million USD in 2011 to a peak of 374 million USD in 2015, before declining slightly to 353 million USD in 2016. The growth in interest costs remained controlled relative to the expansion of operating income.
- Interest Coverage Ratio Performance
- The interest coverage ratio remained healthy throughout the period, fluctuating between a low of 7.92 in 2014 and a high of 10.21 in 2016. A brief decline was noted in 2014, resulting from a sharper increase in interest expenses relative to EBIT growth in that specific year. However, the ratio recovered strongly by 2016, reaching its highest point due to a significant surge in EBIT combined with a reduction in interest expenses.
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Fixed Charge Coverage
McKesson Corp., fixed charge coverage calculation, comparison to benchmarks
| Mar 31, 2016 | Mar 31, 2015 | Mar 31, 2014 | Mar 31, 2013 | Mar 31, 2012 | Mar 31, 2011 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Net income attributable to McKesson Corporation | 2,258) | 1,476) | 1,263) | 1,338) | 1,403) | 1,202) | |
| Add: Net income attributable to noncontrolling interest | 52) | 67) | (5) | —) | —) | —) | |
| Less: Income (loss) from discontinued operations, net of tax | (32) | (299) | (96) | —) | —) | 72) | |
| Add: Income tax expense | 908) | 815) | 742) | 581) | 516) | 505) | |
| Add: Interest expense | 353) | 374) | 303) | 240) | 251) | 222) | |
| Earnings before interest and tax (EBIT) | 3,603) | 3,031) | 2,399) | 2,159) | 2,170) | 1,857) | |
| Add: Rental expense under operating leases | 433) | 440) | 298) | 242) | 240) | 157) | |
| Earnings before fixed charges and tax | 4,036) | 3,471) | 2,697) | 2,401) | 2,410) | 2,014) | |
| Interest expense | 353) | 374) | 303) | 240) | 251) | 222) | |
| Rental expense under operating leases | 433) | 440) | 298) | 242) | 240) | 157) | |
| Fixed charges | 786) | 814) | 601) | 482) | 491) | 379) | |
| Solvency Ratio | |||||||
| Fixed charge coverage1 | 5.13 | 4.26 | 4.49 | 4.98 | 4.91 | 5.31 | |
| Benchmarks | |||||||
| Fixed Charge Coverage, Competitors2 | |||||||
| Abbott Laboratories | — | — | — | — | — | — | |
| Elevance Health Inc. | — | — | — | — | — | — | |
| Intuitive Surgical Inc. | — | — | — | — | — | — | |
| Medtronic PLC | — | — | — | — | — | — | |
| UnitedHealth Group Inc. | — | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-03-31), 10-K (reporting date: 2015-03-31), 10-K (reporting date: 2014-03-31), 10-K (reporting date: 2013-03-31), 10-K (reporting date: 2012-03-31), 10-K (reporting date: 2011-03-31).
1 2016 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 4,036 ÷ 786 = 5.13
2 Click competitor name to see calculations.
Between the fiscal years ending March 31, 2011, and March 31, 2016, a substantial increase in operational profitability is evident, accompanied by a corresponding rise in fixed financial obligations. While both earnings and charges grew over the period, the relationship between them fluctuated, resulting in a non-linear trend in the fixed charge coverage ratio.
- Earnings Before Fixed Charges and Tax
- A consistent upward trajectory is observed, with earnings growing from 2,014 million in 2011 to 4,036 million in 2016. This represents a total increase of approximately 100% over the six-year period, indicating a strengthened capacity to service financial obligations.
- Fixed Charges
- Fixed charges experienced a general increase, rising from 379 million in 2011 to a peak of 814 million in 2015, before slightly declining to 786 million in 2016. The growth in charges was more aggressive than earnings growth between 2011 and 2015, which exerted downward pressure on coverage metrics.
- Fixed Charge Coverage Ratio
- The coverage ratio exhibited a downward trend for the majority of the period, decreasing from 5.31 in 2011 to a low of 4.26 in 2015. This compression reflects a period where fixed charges grew at a faster relative rate than earnings. However, a significant recovery occurred in 2016, where the ratio rebounded to 5.13, driven by a surge in earnings and a moderate reduction in fixed charges.
Overall, the solvency profile remains robust, as the coverage ratio remained consistently above 4.0 throughout the analyzed period. The recovery observed in the final year suggests a strengthening of the margin of safety regarding the fulfillment of fixed financial commitments.
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