Topic_13_E2 - Topic 13, Exercise 2 Use of Debt in the...

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Topic 13, Exercise 2 Use of Debt in the Capital Structure Outstanding corporate debt increased by 46% between 1995 and 1999. This increase prompted some observers to express concern about the financial health of the nonfinancial corporate sector. An article entitled, “Rapidly Rising Corporate Debt: Are Firms Now Vulnerable to and Economic Slowdown,” was published by the Federal Reserve Bank in June of 2000. The relevance of this analysis to current conditions is very interesting. After reading the article, address the following questions: 1. What three measures of corporate health give us a clearer picture of the relationship between corporate indebtedness and vulnerability? a. Leverage or the extent to which firms use debt in their capital structure, as measured by debt to equity or debt to assets. b. Liquidity targets a company’s ability to meet its debt service obligations, as measured by current assets to current liabilities, interest expense to current operating income and interest
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This note was uploaded on 09/13/2011 for the course FIN 6301 taught by Professor El-asmawanti during the Fall '09 term at University of Texas at Dallas, Richardson.

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Topic_13_E2 - Topic 13, Exercise 2 Use of Debt in the...

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