To explain: The impact on interest coverage due to the dramatic expansion of corporate debt.
Introduction:
Corporate Debt:
It is the debt owed by corporations rather than governments or individuals. It is circulated as commercial paper while long-term debt is circulated as bonds. It is a non-government debt security.
Interest coverage ratio:
It is a financial ratio used to determine the way a corporation can timely and easily pay interest on its debt.
Answer to Problem 1DQ
The impact on interest coverage due to the dramatic expansion of corporate debt was such that the ratio had been brought down to almost less than half the original interest.
Explanation of Solution
Over the years, precisely since 1977, it has been observed by many analysts that there is a dramatic expansion of corporate debt over the last 3 decades. It has a major impact on interest coverage as U.S. manufacturing corporations had to cover their interest 8 times. Not only that, the value of the ratio was brought down to less than half the original value by the 2000s.
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- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT