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Earnings, EPS and Falling Credit Quality of US Companies

April 10, 2013

Equity analysts in the US are gushing about the recent trend of buoyant earnings per share (EPS) of US companies. Unfortunately, that is not something for creditors to cheer about. The rising EPS, in many cases, is not due to strong operating earnings, but due to share buybacks which reduce the number of outstanding shares. The buybacks in many cases have been funded through debt. These shenanigans effectively make equity senior to debt and creditors who are sleeping on the wheel are in for a nasty surprise.

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From → Credit Analysis

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