This oversight can have serious consequences for companies in terms of increased costs, slowed growth potential and reduced competitive advantage.
1-Reduced ability to service debt: This can lead companies to incur rising costs without a corresponding increase in revenues to compensate. Companies can be left in a precarious position if too much of their capital is consumed by paying high-interest debt.
2-Slower growth: When interest rates rise, companies often achieve slower growth rates due to the difficulty in accessing loans, as well as the higher costs associated with borrowing.
3-Businesses with floating money: With this increase the interest income of banks and institutions increases in turn. As such, a higher float could lead to higher yields when interest rates rise. Not only that, but it can also help them expand their business at a time when competitors are having trouble keeping up.
4-Companies with positive cash flow: Companies can potentially benefit when interest rates rise because they can invest their money in higher-yielding securities.
When the general interest rate in the market increases, companies with positive cash flow can use this surplus capital to purchase securities and investments that pay a higher yield than before, allowing them to further increase their positive cash flow and maintain liquidity.
Translated by: A.M