Forum Archive Index - April 2002

["Viewpoint ." <viewpoint_@hotmail.com>]

Interesting piece by Snoopy on the FIG message board discussing whether 
'debt is good'. Was this prompted by our recent discussion around Telecom?

Some numbers out of the US concerning the high levels of corporate debt make 
sobering reading.

In the US pretax corporate profits equaled 224% of net interest expense at 
the end of 2001, down from 292% in 2000 and almost half the glorious 
400%-plus level reached back in 1996. Putting in another way interest 
currently consumes 33% of EBIT compared to less than 20% of EBIT back in 
1996.

And the current situation is happening when interest rates are at very low 
levels. Obvious to see why Greenspan is loathe to increase interest rates at 
the moment - work out for yourself what would happen to earnings if interest 
rates went up.

Back in 1999 Telecoms pretax earnings ware 650% of interest cost (interest 
only consuming 13% of EBIT). Presently pretax profits are 235% of interest 
(interest consuming 30% of EBIT).

>From this you can see the impact high levels of debt have on Telecom's 
profitability, especially when acquisitions are not bringing in the goodies 
as expected.




_________________________________________________________________
Chat with friends online, try MSN Messenger: http://messenger.msn.com


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/