"Debt acts as a magnifier of performance and that works both up and down."
mARK tHOMAS, business strategy specialist, PA CONSULTING GROUPRichard MilneFinancial Times11 October 2011
PA’s Mark Thomas, a business strategy specialist, is quoted in the Financial Times. Mark gives his view on how there is a subtle shift taking place in how companies fund themselves, which could have huge implications for how they operate in the future. The trend can best be summed up by the phrase: bank to bond.
In the article Mark underlines that at the height of the crisis companies either had to fund themselves with their own cash or tap capital markets. But, he argues the move to bonds has been less pronounced than many would like: “My own view is there has not been as much of a change as expected. There has been a bit of a move away from banks.”
Mark goes on to outline his prediction companies will have to fall back on more equity and less debt: “I would not be surprised that, in the same way that the last decade was one of debt, we now move into an era of equity.”
For Mark that means corporate performance could become a little more stable with fewer of the wild swings associated with debt-funded growth. Mark concludes: “Debt acts as a magnifier of performance and that works both up and down. When things are going well, it is a fantastic magnification of performance. If things start to unravel, they unravel far more quickly if you have lots of debt.”
You can read the article in full here.