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 analysis of the debt data over the five-year period reveals several notable trends and fluctuations across different categories of debt.
- Short-term borrowings
- Short-term borrowings show limited activity with very low amounts recorded sporadically. There is no data for 2019 and 2021, while modest amounts appear in 2020 (4 million US$), 2022 (2 million US$), and 2023 (3 million US$). This suggests minimal reliance on short-term debt funding during most periods.
- Current portion of long-term debt
- This category experiences considerable variation. Starting at 500 million US$ in 2019, it increases to 600 million US$ in 2020. There is an absence in the 2021 data, but in 2022, a sharp increase to 1,350 million US$ is observed. Data for 2023 is missing. The spike in 2022 indicates a significant portion of long-term debt became due within the year, increasing the short-term debt obligations.
- Finance lease liabilities, current
- Current finance lease liabilities are absent for all years except for a nominal 1 million US$ reported in 2023, suggesting either newly adopted leases or growing recognition of lease liabilities under updated accounting standards in recent years.
- Long-term debt, net of discount and issuance costs, excluding current portion
- The long-term debt component remains relatively stable across the years, with figures fluctuating slightly around the 6,500 million US$ mark. It starts at 5,947 million US$ in 2019 and rises to 6,595 million US$ in 2020. The amounts for 2021, 2022, and 2023 are 6,592 million US$, 6,552 million US$, and 6,564 million US$, respectively. This indicates consistent management of long-term debt levels without substantial refinancing or repayments that would significantly alter the balance.
- Finance lease liabilities, noncurrent
- Noncurrent finance lease liabilities are not reported until 2023 when a value of 8 million US$ appears. This points to an increased recognition of lease-related obligations beyond the current year, likely due to changes in lease accounting or new lease agreements affecting noncurrent liabilities.
- Total debt and finance lease liabilities (carrying amount)
- The total debt amount shows some volatility. The balance rises from 6,447 million US$ in 2019 to a peak of 7,199 million US$ in 2020, followed by a decline to 6,592 million US$ in 2021. It then increases sharply again to 7,904 million US$ in 2022, before decreasing to 6,576 million US$ in 2023. These fluctuations reflect the movements primarily in the current portion of long-term debt and short-term obligations, alongside relatively stable long-term debt. The peak in 2022 aligns with the surge in current portions of long-term debt, contributing significantly to the higher total debt burden for that year.
Overall, the data indicate a stable long-term debt structure with occasional spikes in short-term debt obligations, particularly notable in 2022. The emerging recognition of finance lease liabilities in recent years reflects evolving accounting treatments. The total debt profile demonstrates periodic fluctuations influenced by shifts in the composition between short-term and long-term liabilities.
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).
- Interest Expense, Net of Capitalized Interest
- The net interest expense showed a general stability from 2019 to 2022, with values fluctuating slightly between 223 million and 231 million US dollars. In 2023, however, there was a noticeable increase, reaching 239 million US dollars. This suggests a moderate rise in the net interest burdens towards the end of the period analyzed.
- Capitalized Interest Expense
- Capitalized interest expense exhibited a consistent upward trend over the five-year period. It increased steadily each year from 13 million US dollars in 2019 to 27 million US dollars in 2023, effectively more than doubling. This indicates a growing portion of interest costs being allocated towards capital projects, possibly reflecting increased investment activity or asset development.
- Interest Costs Incurred
- Total interest costs incurred also followed an overall increasing pattern, with minor fluctuations. Beginning at 236 million US dollars in 2019, there was a peak in 2020 at 248 million US dollars, a slight decrease in 2021 and 2022 to 244 and 242 million respectively, followed by a notable rise to 266 million US dollars in 2023. The escalation in 2023 suggests heightened borrowing levels or higher interest rates impacting the cost of debt.
- Summary of Trends
- The data reflects a stable interest expense net of capitalized interest until 2022, after which an upward movement occurs. Concurrently, capitalized interest expense consistently rises, indicating increased capital investment or asset growth. The total interest costs incurred show modest volatility but trend upwards, culminating in a pronounced increase in the final year. Overall, these trends highlight increased obligations related to interest payments, alongside greater capitalization of interest expenses over time.
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
- Interest Coverage Ratio (without capitalized interest)
-
The interest coverage ratio exhibited a consistent upward trend from 2019 to 2023. Starting at 9.08 in 2019, the ratio increased steadily each year, reaching 13.28 in 2023. This suggests an improving capacity of the company to cover its interest expenses with operating earnings, indicating a strengthening financial position and enhanced ability to meet debt obligations.
- Adjusted Interest Coverage Ratio (with capitalized interest)
-
A similar upward trend is observed in the adjusted interest coverage ratio, which accounts for capitalized interest. It rose from 8.58 in 2019 to 11.94 in 2023, reflecting an improvement in the company's ability to cover interest expenses after considering capitalized interest costs. Although the adjusted ratio remains lower than the unadjusted ratio, the gradual increase over the years indicates consistent financial strengthening with respect to interest obligations.
- Comparative Analysis
-
Both ratios demonstrate parallel upward trajectories, with the unadjusted measure consistently higher than the adjusted one, which is expected due to capitalization effects. The widening gap between the two ratios from 2019 to 2021 suggests increasing capitalized interest during this period; however, from 2021 onwards, the increase in both ratios' values appears to stabilize, indicating a possible moderation in capitalized interest relative to earnings.
Overall, the data reflects improving earnings relative to interest costs, signaling enhanced creditworthiness and reduced financial risk over the five-year span.