Tag Archive: misallocation

Debt and Profit in Russell 2000 Firms

This week, the Supply and Demand Report featured a graph of debt vs profitability in the Russell 2000. Here’s the graph again: This graph shows a theme that we, and practically no one else(!) have been discussing for years. It is the diminishing marginal utility of debt. In this case, more and more debt is required to add what looks like less and less profit (we don’t have the raw data, only the graphic).

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