The debt trap

RNG

Moderator
Jan 2015
13,085
8,866
Left coast
#1
Here is a scary stat:




US corporate debt continues to hit new all-time highs.
The chart above shows how little operating income (technically, nonfinancial companies' funds from operations) supports the median American company's ever-growing debt load.
  • Think of this in personal finance terms. Financial advisers like to say that you shouldn't have total debts, including your mortgage, of more than 2.5 times your income. In corporate America, that ratio is now more than 6.5 times.
  • Up until now, interest rates have been low and credit has been flowing freely, making it easy for companies to service these debts. But now rates are rising, and these debt loads could start to bite.
"Given where we are in the credit cycle, there are concerns about how and when prevailing conditions will turn. Such a change could spark bouts of strong volatility and periods of rapidly rising financing costs and illiquidity — limiting borrowers' financial flexibility — giving rise to increased defaults."
— Jacob Crooks and David Tesher, S&P Global Ratings
Click to expand...
The one time surge for corporations from the tax cut is history. The future is problematic.

From Axios Edge Newsletter.
 
Sep 2014
4,401
1,267
South FL
#3
  • Think of this in personal finance terms. Financial advisers like to say that you shouldn't have total debts, including your mortgage, of more than 2.5 times your income. In corporate America, that ratio is now more than 6.5 times.
  • .
Its more about the mortgage payment as a percentage of income. In the case of the business, and this isn't to discount how leveraging inceases risk, all of the expenses, including the cost of carrying debt is included and then you come down to net income.