If the global economy slows down further and if revenues and earnings get dragged down with it, all of which are now part of the scenario, these highly leveraged balance sheets will further pressure already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades, and demand even more compensation for taking on these risks. It starts a vicious circle, even in high-grade debt.
Alas, much of the debt wasn’t invested in productive assets that would generate income and make it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share repurchases designed to prop up the company’s stock and nothing else, and they plowed it into grandiose mergers and acquisitions, and into other worthy financial engineering projects.
Now the money is gone. The debt remains. And the interest has to be paid. via Wrath of Financial Engineering: It's Eating Into Earnings
But you didn't. But if you had, that vicious circle woulda been a virtuous circle spun by investments in training, equipment and resources and salaries. But you didn't.
So now let's guess what your first decision will be after you announce you failed to meet your target revenues and see declining revenues for the next 2-3 quarters.
What, anyone. Ferris? That's right. You're gonna announce layoffs. That asset you consider your most important - yeah it's the same one you ignored while you financially engineered your way into this hole - will be the first one you cut. Just like you did in 2008-9.
Sigh.
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