U.S. Firms’ Finances Vulnerable, NYSE Says

NEW YORK — Despite increased profits, improved productivity and lower inflation rates, the financial health of U.S. companies remains precarious as continued high levels of debt leave firms vulnerable to uncertain interest rates, according to a New York Stock Exchange study released Wednesday.

In an update to a March, 1983, study on the financial health of U.S. companies, the exchange said: “The sad fact is that into the third year of the current expansion, rapid debt accumulation continues and corporate balance sheets remain vulnerable to a rise in interest rates. As a result, there is a cloud over long-term economic prosperity.”

It added: “For these problems to exists in the midst of a vigorous economic upturn, when corporate balance sheets typically rebound strongly, is a true cause for concern.” The growth in corporate debt last year was the fastest in the postwar period, it said. About 60% of that debt was short-term debt, bringing the share of short-term debt outstanding up to 51%, the highest in 25 years, it said.

The larger federal deficit and heavy government borrowing have helped push up long-term interest rates disproportionately and helped create a significant wedge between long- and short-term rates, it said. With short-term rates averaging 30% less than long-term rates during 1983 and 1984, corporate treasurers used short-term instruments to finance two-thirds of their external debt, it said.

That may be good near-term financing strategy but one which leaves corporate finances vulnerable, it said.