Another reason some cyclicals are more volatile than others is debt. Debt adds more fixed expenses (interest payments) into a company's cost structure, and those fixed expenses must be paid in both good and bad times. As a result, the more debt a company has, the more volatile its earnings can be.
United Technologies is a highly leveraged company, though leverage improved in 1999. Shareholders' equity accounted for just 31% of total assets the September quarter, and its financial leverage of 3.3 is somewhat high for an aerospace company. The company's financial leverage inched up between 1996 and 1998 but then fell again in 1999, which is a positive sign.
Does the Company Consistently Generate Positive Cash Flow? >>