Should a credit analyst care about financial leverage? Of course, the amount and types of financial claims against a firm are material to the ability of a firm to avoid defaulting on its debts. What about operating leverage? Should the credit analyst care? Of course, if a firm has high fixed costs and low variable costs (high operating leverage), its financial position is less stable than that of a company that has low fixed costs and high variable costs. Changes in demand don’t affect a firm as much if they have low operating leverage.
That might be fine for industrials and utilities, but what about financials? Aren’t financials differe