Analysis of Debt
Total Debt (Carrying Amount)
Zoetis Inc., balance sheet: debt
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
The total debt and finance lease liabilities exhibit a fluctuating trend over the analyzed five-year period, characterized by a significant peak in 2022 before returning to levels consistent with 2019 and 2021. The overall debt profile is heavily weighted toward non-current long-term obligations.
- Total Debt Trajectory
- Total carrying amounts rose from US$ 6,447 million in 2019 to a peak of US$ 7,904 million in 2022, ending at US$ 6,576 million in 2023. The most pronounced variance occurred between 2021 and 2022, where total debt increased by approximately US$ 1,312 million, before declining by US$ 1,328 million in the following year.
- Long-Term Debt Stability
- The non-current portion of long-term debt remained remarkably stable from 2020 through 2023, maintaining a range between US$ 6,552 million and US$ 6,595 million. An initial increase was observed between 2019 and 2020, rising from US$ 5,947 million to US$ 6,595 million, after which the balance plateaued.
- Current Obligation Volatility
- The current portion of long-term debt shows significant volatility, notably spiking to US$ 1,350 million in 2022. This surge is the primary driver of the overall increase in total debt for that year, suggesting a concentration of debt maturities during that period. Conversely, short-term borrowings remained nominal and immaterial throughout the period, peaking at only US$ 4 million in 2020.
- Introduction of Lease Liabilities
- Finance lease liabilities were not present in the reported data from 2019 to 2022. In 2023, these liabilities emerged with a current portion of US$ 1 million and a non-current portion of US$ 8 million, representing a minor shift in the composition of the company's total liabilities.
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Total Debt (Fair Value)
| Dec 31, 2023 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Short-term borrowings | 3) |
| Long-term debt, including current portion | 6,319) |
| Finance lease liabilities | 9) |
| Total debt and finance lease liabilities (fair value) | 6,331) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 0.96 |
Based on: 10-K (reporting date: 2023-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt and finance lease liabilities: 4.09%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 4.50% | 750) | 34) | |
| 5.40% | 600) | 32) | |
| 3.00% | 750) | 23) | |
| 3.90% | 500) | 20) | |
| 2.00% | 750) | 15) | |
| 5.60% | 750) | 42) | |
| 4.70% | 1,150) | 54) | |
| 3.95% | 500) | 20) | |
| 4.45% | 400) | 18) | |
| 3.00% | 500) | 15) | |
| 4.99% | 9) | —) | |
| Total | 6,659) | 272) | |
| 4.09% | |||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 272 ÷ 6,659 = 4.09%
Interest Costs Incurred
Zoetis Inc., interest costs incurred
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
Total interest costs incurred exhibited a period of relative stability from 2019 through 2022, followed by a notable increase in 2023. Between December 31, 2019, and December 31, 2022, total costs fluctuated within a narrow range of approximately $236 million to $248 million. However, by December 31, 2023, interest costs incurred rose to $266 million, representing a significant increase over the prior year.
- Trend in Capitalized Interest Expense
- A consistent and steady upward trajectory is observed in capitalized interest expense, which grew every year from $13 million in 2019 to $27 million in 2023. This trend suggests a sustained increase in investment toward long-term assets or capital projects that allow for the capitalization of borrowing costs.
- Analysis of Net Interest Expense
- Interest expense, net of capitalized interest, remained relatively flat for the majority of the analyzed period, moving from $223 million in 2019 to $221 million in 2022. A shift occurred in 2023, where the net expense increased to $239 million, contributing to the overall rise in total interest costs.
- Shift in Interest Cost Composition
- The proportion of total interest costs being capitalized has expanded. In 2019, capitalized interest represented approximately 5.5% of total interest costs incurred. By 2023, this proportion increased to approximately 10.1%, indicating that a larger share of the company's interest burden is being allocated to the balance sheet rather than the income statement.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
2023 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, net of capitalized interest
= 3,175 ÷ 239 = 13.28
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 3,175 ÷ 266 = 11.94
The company exhibits a sustained upward trend in its capacity to service interest obligations over the five-year period from 2019 to 2023. Both the standard and adjusted interest coverage ratios demonstrate consistent year-over-year growth, indicating a strengthening financial position and a reduction in credit risk.
- Interest coverage ratio (without capitalized interest)
- A consistent increase is observed, with the ratio rising from 9.08 in 2019 to 13.28 in 2023. The most significant acceleration in coverage occurred between 2020 and 2021, where the ratio grew from 9.64 to 12.11, suggesting a substantial improvement in earnings relative to interest expenses during that period.
- Adjusted interest coverage ratio (with capitalized interest)
- The adjusted ratio followed a parallel trajectory, increasing from 8.58 in 2019 to 11.94 in 2023. Similar to the non-adjusted metric, a notable jump is evident in 2021, moving from 8.98 to 11.11, which confirms that the improvement in debt serviceability is robust even when accounting for capitalized interest.
- Comparative Analysis of Capitalized Interest Impact
- The adjusted interest coverage ratio remains consistently lower than the ratio without capitalized interest across all reporting years. This variance highlights the impact of capitalized interest on the company's overall coverage profile. However, the gap between the two metrics has remained relatively stable, indicating that the proportion of capitalized interest relative to total interest expenses has not fluctuated drastically.
Overall, the trajectory of these ratios suggests a significant expansion in the margin of safety for interest payments, with the company ending the period in a substantially stronger position to meet its debt obligations than it was at the start of the analysis period.
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