April 2, 2019
Economists like to keep an eye on the amount of leverage amongst corporations. When corporations take on huge amounts of debt in relation to their net worth, any economic downturn will be much more severe than it would otherwise be as corporations become unable to service their debt from cash flow. However, in the fourth quarter of 2018 the ratio of corporate nonfinancial debt to net worth was 39.5%. This compares to an average ratio of debt to net worth since 1980 of 40.3%. There is no reason to think that the economy is at risk from excessive corporate borrowing.