Gilead Sciences Inc. (NASDAQ: GILD) is one of the world's largest biotechnology companies, with an April 2016 market cap of $138 billion. From 2013 to 2016, the company grew through product releases and strategic acquisitions, many of which were facilitated with rising debt. The larger, more stable company was able to handle higher financial leverage, and debt grew to include more than half of the capital structure by December 2015. Momentum in U.S. biotechnology stocks and increasing debt loads drove GILD's enterprise value higher through 2013 and 2014, though equity market volatility challenged this trend in 2015 and 2016.

Equity Capital

Companies attain equity capital by issuing shares of ownership and generating earnings net of payments to creditors. In the balance sheet, shareholder equity capital is represented with items like common stock, paid-in capital and retained earnings. As of December 2015, Gilead had equity capital of $19.1 billion, consisting of $444 million of additional paid-in capital, $88 million of accumulated other comprehensive income, $18 billion of retained earnings and $579 million of noncontrolling interest.

Gilead's equity capital had book values of $15.8 billion in 2014 and $11.7 billion in 2013. The primary factor driving the increase in shareholder equity was retained earnings, which grew from $6.1 billion in 2013 to $12.7 billion in 2014 and $18 billion in 2015. This was partially offset by falling accumulated other comprehensive income, which tumbled from $5.4 billion in 2013 to $2.4 billion in 2014 and $444 billion in 2015. The other categories were relatively small.

Debt Capital

Debt capital is provided on a temporary basis to companies by external entities, with the expectation that principal will be returned with interest. Companies often issue bonds and unsecured notes to diverse institutional or retail holders, while banks can provide term or revolving loans. For the purpose of analyzing capital structure, operating liabilities are generally excluded from the calculation of debt capital value. As of December 2015, Gilead carried total debt of $22.2 billion, with $21.2 billion of long-term debt and $1 billion of the current portion of long-term debt. The company's long-term debt consists primarily of senior unsecured notes that were issued in December 2011, November 2014 and September 2015. These notes have interest rates ranging from 1.85 to 5.65% and maturity dates ranging from December 2016 to March 2046. Gilead's 2015 total debt of $22.2 billion marked a significant expansion from $12.4 billion in 2014 and $6.6 billion in 2013. The rising debt can be attributed to the issuance of $8 billion of unsecured notes in 2014 and $10 billion in 2015.

Financial Leverage

While Gilead's total debt has grown, investors should note that the shareholder equity has also grown as the firm's scale expanded. Given these dynamics, investors should use financial leverage ratios to understand the evolution of Gilead's capital structure. The total-debt-to-capital ratio is a statistic that measures the level of debt relative to the combined total of debt and equity, thus illustrating the proportionate make-up of the capital structure. With total capital of $41.3 billion in December 2015, Gilead's debt-to-capital ratio was 0.54. The company's financial leverage ratio was 0.44 in 2014 and 0.36 in 2013, so there was a clear upward trend in financial leverage over those years.

Enterprise Value

Enterprise value (EV) is a statistic that measures total firm value based on the market prices of capital. Unlike market capitalization, EV includes debt capital and subtracts net cash, cash equivalents and marketable securities. As of April 2016, Gilead's EV was $147 billion, with a market cap of $138 billion. While the company's debt makes up a significant portion of the capital structure, cash assets of $14.6 billion partially offset this impact. The company's EV grew throughout 2013 and 2014 as debt and market cap both grew, but EV was more volatile in 2015 and 2016, as U.S. equity markets and the strength of biotechnology valuations fluctuated. EV was only $79 billion in April 2013 and grew to be as high as $181 billion by June 2015.

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