FTSE 100 Corporate Debt

(Chris) #1

I’ve just been doing some analysis on the FTSE and was shocked to see the Debt to MarketCap at 72%!!!

For clarification, this is a mix of short and long term liabilities but there is a mountain of debt in the FTSE at the moment. Does anybody have an opinions on this at all?

(Chris) #2

Can you see what it has been historically?

(Chris) #3

Can’t seem to extract it (working on it so I can post it) however, it looks like its compounded about 10.5% each year over the last 5 years. Honestly seems a scary % level - unless somebody would argue the Index is undervalued I guess


I know precisely nothing about this, but I’d guess that because debt has been cheap companies have been taking more of it on (rather than, for example, raising money from the market). Historical data would be helpful in testing that hypothesis!

(Chris) #5

100% you’re right - its inverse correlated to interest rates. I’ll post the data when I can download it. Still astonished at the number though, Vodafone & Tesco look like that have crazy amounts of debts on their books, their dividends & EPS will come under pressure quickly if economics change for the worse

(Chris) #6

Ok so I looked into this and its much harder than I though without access to analyst level data, however here is what I could find.

A couple of notes on this too:

  • This is only ‘long term debt’ which is described as a maturity date of more than 5 years. Not very long term in my humble opinion. I wasn’t able to get the historical data for ‘total debt’ which was my original post.
  • Its FTSE 100 companies for each year and the data is from end of each year. Im raising this because companies will come in and out of the index each year.
  • 2018 data is annualised to end of September only.

Overall I would say that the low interest rate environment has been the key factor in this rising debt. However this year might be higher due to Carillion, Tesco & Vodafone taking on / having huge debt piles. Another view is that the % is high because market caps are low? FTSE 100 is on a trailing P/E of just over 12 as of today, which seems ‘cheap’ given the historical values we’ve had.