The average long-term debt-to-equity (D/E) ratio common for companies in the drugs sector is 70.66 based on trailing 12-month data as of May 12, 2015. The drugs sector is composed of more specialized industries, including drug delivery, drug manufacturers – major, drug manufacturers – other, drug-related products and drugs – generic industries.
The D/E ratio measures a company’s financial leverage and is calculated by dividing a company’s total liabilities by its shareholders’ equity. If a company has a high D/E ratio, the company generally tends to have a high level of debt per each dollar of shareholders’ equity. Some industries are capital intensive, which leads to high D/E ratios. It is typically favorable for investors to invest in companies with low D/E ratios.
The simple average of the D/E ratio for companies in the drugs sector is 70.66, which indicates that for every $1 of shareholders’ equity, companies in the drugs sector have $70.66 in total liabilities. Since the drugs sector is highly capital-intensive, companies in this sector have high D/E ratios.
The drug delivery industry is included in the drugs sector and has the highest long-term D/E ratio in the sector of 152.6. In comparison to the average D/E ratio of the drugs sector, investors in the drug delivery industry assume $81.94, or 152.6 – 70.66, in debt per $1 in shareholders’ equity.
The drug manufacturers – major has a long-term D/E of 66.86. In comparison to the long-term D/E ratio of the industrial goods sector, companies in this industry have $66.86 in debt per $1 of shareholders’ equity. The drug manufacturers – other industry offers the lowest long-term D/E ratio for investors in the drugs sector. The industry’s long-term D/E ratio is 29.85. This indicates that for every $1 of shareholders’ equity for companies in the drug manufacturers – other industry, companies have an average of $29.85 in debt.