Risks of Covid-19 to the corporate sector are on the rise, with the demise of SA’s largest non-food retailer, Edcon, a salutary lesson for those hoping to survive. Highly leveraged companies that have amassed piles of debt are the most likely to feel the pain of the fallout now. At best, over-extended companies risk losing out on the rebound and, at worst, may face a fight for survival.
Forbes summed up this problem well when it said few companies are able to resist the lure of leverage. According to a Forbes investigation, which analysed 455 companies in the S&P 500 Index — excluding banks and cash-rich tech giants such as Apple, Amazon, Google and Microsoft — on average businesses in the index nearly tripled their net debt over the past decade, adding about $2.5-trillion in leverage to their balance sheets. For every dollar of revenue growth over the past decade, the companies added almost a dollar of debt...
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