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)
Allergan Inc., solvency ratios
Based on: 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), 10-K (reporting date: 2010-12-31).
An analysis of solvency metrics from 2010 to 2014 reveals a significant strengthening of the organization's financial position. There is a consistent trend toward reduced leverage and a substantial increase in the capacity to service fixed financial obligations, indicating a lower risk of insolvency over the five-year period.
- Capital Structure and Leverage
- A general downward trend in leverage is observed across multiple indicators. The debt to equity ratio decreased from 0.46 in 2010 to 0.28 by 2014, while the debt to assets ratio declined from 0.27 to 0.17 over the same period. Similarly, the debt to capital ratio moved from 0.32 in 2010 to 0.22 in 2014. These movements suggest a strategic shift toward a more equity-heavy capital structure and a reduced reliance on borrowed funds.
- Financial Leverage
- Financial leverage remained relatively stable, experiencing a slight overall decline from 1.75 in 2010 to 1.60 in 2014. This stability indicates a controlled approach to the use of debt to finance asset growth, avoiding aggressive expansion through high-risk borrowing.
- Debt Service Capacity
- The most pronounced improvement is found in the coverage ratios. The interest coverage ratio experienced an exponential increase, rising from 3.17 in 2010 to 29.66 in 2014, which signifies a vastly improved ability to meet interest payments from operating profits. This trend is mirrored in the fixed charge coverage ratio, which grew from 2.29 in 2010 to 14.93 in 2014, confirming a robust margin of safety for all fixed financial commitments.
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Debt Ratios
Coverage Ratios
Debt to Equity
Allergan Inc., debt to equity calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Notes payable | 72,100) | 55,600) | 48,800) | 83,900) | 28,100) | |
| Convertible notes | —) | —) | —) | —) | 642,500) | |
| Long-term debt, excluding current maturities | 2,085,300) | 2,098,300) | 1,512,400) | 1,515,400) | 1,534,200) | |
| Total debt | 2,157,400) | 2,153,900) | 1,561,200) | 1,599,300) | 2,204,800) | |
| Total Allergan, Inc. stockholders’ equity | 7,753,000) | 6,463,200) | 5,837,100) | 5,309,600) | 4,757,700) | |
| Solvency Ratio | ||||||
| Debt to equity1 | 0.28 | 0.33 | 0.27 | 0.30 | 0.46 | |
| Benchmarks | ||||||
| Debt to Equity, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Debt to equity = Total debt ÷ Total Allergan, Inc. stockholders’ equity
= 2,157,400 ÷ 7,753,000 = 0.28
2 Click competitor name to see calculations.
Between 2010 and 2014, the company exhibited a general trend of strengthening its solvency position, characterized by steady growth in stockholders' equity and fluctuating total debt levels. The overall debt-to-equity ratio declined from 0.46 in 2010 to 0.28 in 2014, indicating a reduced reliance on borrowed capital relative to equity over the five-year period.
- Stockholders' Equity Growth
- A consistent upward trajectory is observed in total stockholders' equity, which increased every year from 4,757,700 thousand US$ in 2010 to 7,753,000 thousand US$ in 2014. This uninterrupted growth suggests a strong accumulation of retained earnings or additional capital contributions, providing a larger cushion for creditors.
- Total Debt Volatility
- Total debt demonstrated a non-linear pattern. An initial reduction occurred between 2010 and 2012, where debt fell from 2,204,800 thousand US$ to 1,561,200 thousand US$. However, a significant increase was recorded in 2013, with debt rising to 2,153,900 thousand US$, before remaining relatively stable at 2,157,400 thousand US$ by the end of 2014.
- Debt to Equity Ratio Analysis
- The debt-to-equity ratio reflects the interplay between the increasing equity base and the shifting debt levels. The ratio reached its lowest point of 0.27 in 2012. While the increase in debt in 2013 caused the ratio to rise to 0.33, the simultaneous growth in equity prevented a return to 2010 levels. By 2014, the ratio improved further to 0.28, confirming a more conservative capital structure than that present at the start of the analyzed period.
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Debt to Capital
Allergan Inc., debt to capital calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Notes payable | 72,100) | 55,600) | 48,800) | 83,900) | 28,100) | |
| Convertible notes | —) | —) | —) | —) | 642,500) | |
| Long-term debt, excluding current maturities | 2,085,300) | 2,098,300) | 1,512,400) | 1,515,400) | 1,534,200) | |
| Total debt | 2,157,400) | 2,153,900) | 1,561,200) | 1,599,300) | 2,204,800) | |
| Total Allergan, Inc. stockholders’ equity | 7,753,000) | 6,463,200) | 5,837,100) | 5,309,600) | 4,757,700) | |
| Total capital | 9,910,400) | 8,617,100) | 7,398,300) | 6,908,900) | 6,962,500) | |
| Solvency Ratio | ||||||
| Debt to capital1 | 0.22 | 0.25 | 0.21 | 0.23 | 0.32 | |
| Benchmarks | ||||||
| Debt to Capital, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Debt to capital = Total debt ÷ Total capital
= 2,157,400 ÷ 9,910,400 = 0.22
2 Click competitor name to see calculations.
The analysis of the solvency profile between 2010 and 2014 indicates a period of strategic adjustments in capital structure, characterized by an overall reduction in leverage relative to the expanding capital base.
- Total Debt Trends
- Total debt experienced significant fluctuations throughout the period. A deleveraging phase is evident between 2010 and 2012, during which total debt decreased from 2,204,800 thousand USD to 1,561,200 thousand USD. This trend reversed in 2013 with a substantial increase to 2,153,900 thousand USD, a level that remained nearly stagnant through the end of 2014.
- Total Capital Expansion
- Total capital demonstrated a consistent growth pattern starting after 2011. From a base of 6,908,900 thousand USD in 2011, total capital expanded steadily to 9,910,400 thousand USD by December 31, 2014. This growth in the capital base provided a buffer that mitigated the impact of increased borrowing in the later years.
- Debt to Capital Ratio Analysis
- The debt to capital ratio reflects a general improvement in solvency. The ratio fell from a peak of 0.32 in 2010 to a minimum of 0.21 in 2012. While the ratio climbed to 0.25 in 2013 due to the rise in total debt, it retreated to 0.22 by 2014. The convergence of the 2014 ratio toward the 2012 low, despite higher absolute debt levels, confirms that the increase in total capital outpaced the increase in debt, resulting in a more conservative leverage position relative to the 2010 baseline.
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Debt to Assets
Allergan Inc., debt to assets calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Notes payable | 72,100) | 55,600) | 48,800) | 83,900) | 28,100) | |
| Convertible notes | —) | —) | —) | —) | 642,500) | |
| Long-term debt, excluding current maturities | 2,085,300) | 2,098,300) | 1,512,400) | 1,515,400) | 1,534,200) | |
| Total debt | 2,157,400) | 2,153,900) | 1,561,200) | 1,599,300) | 2,204,800) | |
| Total assets | 12,415,700) | 10,574,300) | 9,179,300) | 8,508,600) | 8,308,100) | |
| Solvency Ratio | ||||||
| Debt to assets1 | 0.17 | 0.20 | 0.17 | 0.19 | 0.27 | |
| Benchmarks | ||||||
| Debt to Assets, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Debt to assets = Total debt ÷ Total assets
= 2,157,400 ÷ 12,415,700 = 0.17
2 Click competitor name to see calculations.
Between 2010 and 2014, a general improvement in the solvency position is observed, characterized by a reduction in the debt-to-assets ratio and a consistent expansion of the total asset base.
- Asset Growth Trends
- Total assets exhibited a continuous upward trajectory throughout the period, rising from 8,308,100 thousand US dollars in 2010 to 12,415,700 thousand US dollars by 2014. This steady growth indicates a consistent increase in the total resources controlled by the entity.
- Total Debt Fluctuations
- Debt levels showed significant volatility. After an initial decline from 2,204,800 thousand US dollars in 2010 to a low of 1,561,200 thousand US dollars in 2012, total debt increased again, reaching 2,157,400 thousand US dollars by the end of 2014.
- Debt to Assets Ratio Analysis
- The debt-to-assets ratio decreased from 0.27 in 2010 to a low of 0.17 in 2012. While a temporary increase to 0.20 was noted in 2013, the ratio returned to 0.17 in 2014. The fact that the ratio remained lower in 2014 than in 2010, despite total debt returning to similar nominal levels, demonstrates that the growth in total assets effectively offset the increase in liabilities, thereby reducing overall financial leverage.
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Financial Leverage
Allergan Inc., financial leverage calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Total assets | 12,415,700) | 10,574,300) | 9,179,300) | 8,508,600) | 8,308,100) | |
| Total Allergan, Inc. stockholders’ equity | 7,753,000) | 6,463,200) | 5,837,100) | 5,309,600) | 4,757,700) | |
| Solvency Ratio | ||||||
| Financial leverage1 | 1.60 | 1.64 | 1.57 | 1.60 | 1.75 | |
| Benchmarks | ||||||
| Financial Leverage, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Financial leverage = Total assets ÷ Total Allergan, Inc. stockholders’ equity
= 12,415,700 ÷ 7,753,000 = 1.60
2 Click competitor name to see calculations.
A consistent expansion of the balance sheet is evident between 2010 and 2014. Total assets grew steadily from 8,308,100 thousand USD to 12,415,700 thousand USD, indicating a significant increase in the company's resource base over the five-year period. Concurrently, total stockholders' equity experienced a continuous upward trajectory, rising from 4,757,700 thousand USD in 2010 to 7,753,000 thousand USD by the end of 2014.
- Financial Leverage Trend
- The financial leverage ratio exhibited a general downward trend with minor fluctuations. Starting at a peak of 1.75 in 2010, the ratio decreased to 1.60 in 2011 and reached its lowest point of 1.57 in 2012. A slight increase to 1.64 occurred in 2013, before the ratio returned to 1.60 in 2014.
- Solvency Implications
- The overall reduction in the leverage ratio from 1.75 to 1.60 suggests a decrease in the reliance on debt to finance assets. Because stockholders' equity grew at a faster proportional rate than total assets during this period, the company strengthened its equity cushion, thereby improving its long-term solvency profile.
- Asset and Equity Correlation
- The simultaneous growth of both total assets and equity, paired with a stabilizing leverage ratio, indicates a disciplined approach to growth. The expansion of the asset base was supported by internal equity growth rather than an aggressive increase in financial liabilities.
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Interest Coverage
Allergan Inc., interest coverage calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net earnings attributable to Allergan, Inc. | 1,524,200) | 985,100) | 1,098,800) | 934,500) | 600) | |
| Add: Net income attributable to noncontrolling interest | 4,600) | 3,600) | 3,700) | 3,600) | 4,300) | |
| Less: Discontinued operations | (3,800) | (283,800) | —) | —) | —) | |
| Add: Income tax expense | 456,700) | 458,300) | 430,800) | 361,600) | 165,900) | |
| Add: Interest expense | 69,400) | 75,000) | 63,600) | 71,800) | 78,700) | |
| Earnings before interest and tax (EBIT) | 2,058,700) | 1,805,800) | 1,596,900) | 1,371,500) | 249,500) | |
| Solvency Ratio | ||||||
| Interest coverage1 | 29.66 | 24.08 | 25.11 | 19.10 | 3.17 | |
| Benchmarks | ||||||
| Interest Coverage, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Interest coverage = EBIT ÷ Interest expense
= 2,058,700 ÷ 69,400 = 29.66
2 Click competitor name to see calculations.
Between 2010 and 2014, a substantial improvement in the capacity to service debt obligations is observed. The company transitioned from a modest coverage position in 2010 to a highly secure solvency profile by 2014, driven primarily by an aggressive expansion in operating profitability.
- Earnings Before Interest and Tax (EBIT) Trends
- A significant upward trajectory in EBIT is evident, with values rising from 249,500 thousand US$ in 2010 to 2,058,700 thousand US$ in 2014. The most dramatic increase occurred between 2010 and 2011, where earnings grew by approximately 449%, followed by a period of steady, incremental growth through 2014.
- Interest Expense Analysis
- Interest expenses remained relatively stable throughout the analyzed period, exhibiting minor fluctuations. Expenses peaked at 78,700 thousand US$ in 2010 and reached a low of 63,600 thousand US$ in 2012. The lack of significant growth in interest costs, despite the massive increase in operating scale, suggests efficient debt management or a stable debt load.
- Interest Coverage Ratio Evolution
- The interest coverage ratio demonstrates a sharp increase from 3.17 in 2010 to 29.66 in 2014. The jump to 19.10 in 2011 indicates a rapid strengthening of the financial cushion available to cover interest payments. By 2014, the ratio suggests an exceptionally low risk of default, as operating profits were nearly 30 times the amount required to satisfy annual interest obligations.
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Fixed Charge Coverage
Allergan Inc., fixed charge coverage calculation, comparison to benchmarks
| Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | Dec 31, 2011 | Dec 31, 2010 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Net earnings attributable to Allergan, Inc. | 1,524,200) | 985,100) | 1,098,800) | 934,500) | 600) | |
| Add: Net income attributable to noncontrolling interest | 4,600) | 3,600) | 3,700) | 3,600) | 4,300) | |
| Less: Discontinued operations | (3,800) | (283,800) | —) | —) | —) | |
| Add: Income tax expense | 456,700) | 458,300) | 430,800) | 361,600) | 165,900) | |
| Add: Interest expense | 69,400) | 75,000) | 63,600) | 71,800) | 78,700) | |
| Earnings before interest and tax (EBIT) | 2,058,700) | 1,805,800) | 1,596,900) | 1,371,500) | 249,500) | |
| Add: Rental expense | 73,400) | 79,000) | 67,000) | 58,100) | 53,500) | |
| Earnings before fixed charges and tax | 2,132,100) | 1,884,800) | 1,663,900) | 1,429,600) | 303,000) | |
| Interest expense | 69,400) | 75,000) | 63,600) | 71,800) | 78,700) | |
| Rental expense | 73,400) | 79,000) | 67,000) | 58,100) | 53,500) | |
| Fixed charges | 142,800) | 154,000) | 130,600) | 129,900) | 132,200) | |
| Solvency Ratio | ||||||
| Fixed charge coverage1 | 14.93 | 12.24 | 12.74 | 11.01 | 2.29 | |
| Benchmarks | ||||||
| Fixed Charge Coverage, Competitors2 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 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), 10-K (reporting date: 2010-12-31).
1 2014 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 2,132,100 ÷ 142,800 = 14.93
2 Click competitor name to see calculations.
The analysis of solvency ratios from 2010 to 2014 reveals a substantial strengthening of the capacity to meet fixed obligations. This improvement is primarily driven by a rapid and consistent expansion in earnings relative to a stable fixed-cost base, resulting in a significantly reduced financial risk profile over the five-year period.
- Earnings Before Fixed Charges and Tax
- A strong upward trajectory is observed in earnings, which grew from US$ 303 million in 2010 to US$ 2.13 billion by 2014. The most pronounced acceleration occurred between 2010 and 2011, where earnings increased by approximately 372%. Subsequent years showed steady growth, maintaining an average annual increase that fundamentally enhanced the company's solvency margin.
- Fixed Charges
- Fixed charges remained relatively stagnant, fluctuating within a narrow range between US$ 129.9 million and US$ 154 million. The lack of significant growth in these obligations, despite the massive increase in earnings, indicates a disciplined approach to fixed-cost management or a stable debt structure during this period.
- Fixed Charge Coverage Ratio
- The coverage ratio transitioned from a modest 2.29 in 2010 to a robust 14.93 by 2014. After the initial surge to 11.01 in 2011, the ratio remained consistently high, peaking in the final year of the analysis. This trend demonstrates a transition from a position of moderate coverage to one of high financial flexibility, ensuring that fixed obligations are covered many times over by operating earnings.
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