Quote from FT columnist Ruchir Sharma
“A third of publicly traded companies in the US do not earn enough to make their interest payments.”
Seems like a scarily high number to me with interest rates rising and recession a possibility.
I guess they must be the many unprofitable companies that have come to the market in recent years hoping to have a drug approved or disrupt an industry with an app.
“A third of publicly traded companies in the US do not earn enough to make their interest payments.”
Seems like a scarily high number to me with interest rates rising and recession a possibility.
I saw that too.
It really is amazing, given that presumably he’s talking about the present and very recent past, e.g. the most recent reporting periods.
Yet interest burdens are about to rise as debt gets rolled, AND earnings are likely to retreat a bit.
Some of that retreat in earnings may be more than a cyclical/recession dip.
It seems that some factors aren’t merely transient dips: Building new factories in safer or closer but pricier countries, higher labour share of GDP, etc.
So far, real interest rates haven’t risen. Inflation has gone up more than corporate borrowing costs, long or short term.
If indebted firms can raise prices for their products and services at the going rate, the pain might not show up till the cost of money has risen that much.
Jim
Yeah, but if he’s comparing a company’s earnings to its interest payments he’s glossing over the fact that interest payments were already subtracted from revenues to obtain the earnings in the first place. He’s not saying they don’t bring enough money in to make their interest payments, although that’s how he’s trying to make it sound, rather he’s saying that after they bring in enough to pay their debt interest they don’t have enough remaining to make their interest payments again.
I’m more worried about the Canadian mortgage rates changing, which he barely mentions, than the corporate debts he says we should focus on.