We have this exhibit in the curriculum which shows how the different indicators move in a credit cycle.
It shows corporate leverage is falling in early expansion/ recovery. But during this phase, interest rates are low, then how will the leverage fall at this stage?
As profits increase, the retained earnings increase the company’s equity while their debt continues to be paid down. This results in increased equity to debt ratios which is lower leverage.
Oh yes, makes perfect sense…Thank u so much…Also, when profits are rising, defaults will be peaking? How?
