Is Higher Debt Among Companies Something to Worry About?

August 25, 2016

As the Federal Reserve maintains interest rates at all time lows, corporate balance sheets continue to benefit from this accommodative environment, as the low rate environment combined with a bull market has allowed corporations to add leverage to their balance sheets at an alarming rate. With borrowing costs so low, corporations have used this debt to finance stock buybacks, dividend growth, and M&A deals.

The growth of net debt among the S&P 500 constituents has hit levels not seen in the past 10 years, rising significantly against EBITDA levels. Thus, corporations’ operational cash flows are not expanding quickly enough to keep pace with their growing debt loads. This type of imbalance in past cycles has led companies to cut back on spending and hiring.

While consumers have deleveraged since the 2008 housing crisis, corporations have taken advantage of the low rates and subsequent cheap financing. If the Federal Reserve begins to raise rates or economic growth continues to slow, corporations could struggle to cover interest payments on their outstanding debt, which would likely translate to subpar returns for both equity and debt investors.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

07.17.2025

Policy Uncertainty Blurs the Outlook

As we enter the second half of the year, Liberation Day-induced market volatility seems like a distant memory with the…

07.15.2025

Know Your Volatility

Fiduciaries, trustees, and institutional investors may be understandably puzzled by recent developments and shifts in tone from U.S. regulators and…

07.09.2025

One Big Beautiful Bill Act: Excise Tax Changes Legislative Update

The One Big Beautiful Bill Act was passed by Congress and signed into law by President Donald Trump on July…

07.07.2025

The One Big Beautiful Chart

Late last week, President Trump signed a sweeping tax and spending package, branded by the White House as the “One…

07.03.2025

2025 Halftime Market Insights Webinar

Please join Marquette’s research team for our 2025 Halftime Market Insights Webinar analyzing the first half of the…

06.30.2025

Bring Out the Big Guns

NATO has decided to take the phrase “don’t bring a knife to a gun fight” quite literally. Last week at…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >