Is this just a comparison? Or does this have a larger meaning?
In: 1
It means that if corporations had to pay all their debts in a year, it would be very hard. It has no “larger meaning” because that’s not the loan contracts say. People often talk about “making someone pay their debts immediately”, but that’s not a thing. If I have a contract to pay you pack over 10 years, you can’t get your money faster than that unless I agree.
It means that overall, companies are very indebted right now. The risk is that in a rising interest rate environment, which we are entering, that the debt will become more expensive to service over time as it is refinanced. For more indebted companies, that will hurt margins and therefore profits.
It means that, if every corporation wanted to use their income to pay their entire debt, they would need to work for *almost* a year exclusively to do so. Simple as that. If being close to 100% “worries” you, it’s just “a year” using a different unit of measurement.
You could analyse it any way you wanted, if it’s good or bad for the economy, I don’t know. But keep in mind that “debt” is an umbrella term, and doesn’t mean anything without considering the specific agreements made (how long you have to pay it back, how much interest they charge you, etc.). Nobody expects you to pay your mortgage within a year.
Latest Answers