According to recent studies, U. S. corporations’ debt levels could pose some serious headwinds for the United States’ economy in the next major downturn. In April, the International Monetary Fund announced the following red flags:
The U. S. corporate sector has added $7.8 trillion in debt and other liabilities since 2010;
Among S&P 500 firms, median net debt ‘is close to a historic high of more than 1 times earnings’;
Looking at a ‘broader set of nearly 4,000 firms accounting for about half of the economy-wide corporate sector balance sheet, suggests a similar rise in leverage across almost all sectors to levels exceeding those prevailing just before the global financial crisis’;
Debt is especially high ‘in the energy, real estate, and utilities sectors, ranging between four and six times earnings’;
‘The average interest coverage ratio – a measure of the ability for current earnings to cover interest expenses – has fallen sharply over the past two years. Earnings have dropped to less than six times interest expense, close to the weakest multiple since the onset of the global financial crisis.’
This post was published at Wall Street On Parade on August 24, 2017.
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