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Comment by joshe | Hacker News Reader

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.

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But majority of high tech raised equity capital and not debt.

True, 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.

fair point.

I 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.

Maybe smaller companies, but large ones carry a lot of debt because it’s cheap.

Google has $28B in debt.

Which 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.

That 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.

It's amazing how many wrong answers there are in this thread. This is the only correct one.

FAANGs 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.

How much money did MS make last year?

~$73B, but profits, margins, and cash on hand decreased in the most recent quarter

is it a rule of thumb for companies to want 5 years worth of expenses on hand as cash?

Not if the company is profitable. Even for unprofitable companies that sounds high.

> 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.

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