4 ms·
It's interest rates. Capital is becoming more expensive. If you are a good CFO, you say: "Hey remember how we want 5 years of cash, well i just looked at sell
by joshe 4y ago
It's interest rates. Capital is becoming more expensive.
If you are a good CFO, you say:
"Hey remember how we want 5 years of cash, well i just looked at selling bonds and getting cash now is expensive." For tech companies the biggest expense is salaries, so saving cash means firing people.
For the smaller companies they aren't getting investments as easily or at all. They will also need to save cash.
The next few years are going to be different.
Interest rates: https://fred.stlouisfed.org/graph/?g=Z12V https://fred.stlouisfed.org/graph/?g=Z12V.
- indus 4y agoBut majority of high tech raised equity capital and not debt.
- morgango 4y agoTrue, but valuations are based on future earnings potential. If the market looks down, then there is the idea that there is less revenue coming in the future, and the company has less capability to sustain a workforce. It really is interest rates.
- indus 4y agofair point.
- metaphor 4y agoI wonder how many of those tech companies that you're alluding to have evergreen provisions baked into their capital structure, and what that means from a cost of equity perspective at the prevailing risk-free rate.
- refurb 4y agoMaybe smaller companies, but large ones carry a lot of debt because it’s cheap. Google has $28B in debt.
- ulfw 4y agoWhich they can pay all back TODAY if they want to. Not tomorrow, not in 10 years. Today. That's how much money they have in the bank.
- refurb 4y agoThat doesn’t change anything. The question was “do they hold debt”. Debt has major tax benefits to it. That’s why companies who don’t really need to issue debt, do.
- sangupta 4y ago> the biggest expense is salaries And this also gives these companies (and others) a reason to skip promotions and pay hikes for everyone else. This is just an excuse to exploit labor to increase profits when demand is falling.
- roflyear 4y agoHow much money did MS make last year?
- ac29 4y ago~$73B, but profits, margins, and cash on hand decreased in the most recent quarter
- lamontcg 4y agoFAANGs are also big enough that they'll have actual econometricians working under the CFO who are producing gloomy reports about the over leveraged sectors of the economy are likely to set off detonations due to higher interest rates.
- MuffinFlavored 4y agois it a rule of thumb for companies to want 5 years worth of expenses on hand as cash?
- ac29 4y agoNot if the company is profitable. Even for unprofitable companies that sounds high.
- aetimmes 4y agoIt's amazing how many wrong answers there are in this thread. This is the only correct one.