Advice to CEOs and CFOs: Protect Your Cash Flow and Ignore The Fed's Short-Term Noise
CEOs and CFOs can’t afford to follow the Fed. Executive Management teams ought to be aggressive in protecting their company’s cash flow in this elevated interest rate environment. Even if the Fed trims its Fed Funds rate to 4% or so by year-end, that will not make a difference to financially distressed companies. There is an immediate opportunity for cash flow rich companies to prey on financially distressed companies.
Cash rich companies can take market share during a high rate environment.
Cash rich companies can acquire financially distressed companies at attractive valuations in a high rate environment.
Cash rich companies can acquire top talent in a high rate environment.
You don’t have to be a large cap company to capture the above benefits. You simply have to be a prudent management team that values cash flow, that hopefully did not gorge on cheap debt between 2010-2022 that now has to be rolled over at an interest rate that is 3-4x higher.
If you did gorge on cheap debt and can afford to pay it down, do so. Eliminate the default risk and eliminate the concern that equity investors may have around your debt. The truth is that many equity investors do not understand debt and rather than take the time to study your balance sheet and understand the opportunity, they will ignore your company because you carry substantial debt.