[websitejanitor]

The base interest rate has gone up.

Businesses don't pay for costs solely with revenue, they also use cash from loans. Revenue is used to pay off loans, so higher interest rates mean loans become more expensive. To maintain constant loan repayment costs through a projected year, the total amount of those loans has to go down. With lower cash from loans, costs have to be cut and payroll is one of them.

I think this partially explains why everyone is doing layoffs regardless of revenue performance: they all have to adapt to the same conditions of higher interest rates.

[jalino23]

microsoft needs loans?

[ShuffleBoard]

Sure; every company effectively does, by way of the "cost of capital:" https://online.hbs.edu/blog/post/cost-of-capital#:~:text=Wha....

But regardless of whether any big tech co. needs loans or not, the cost of any investment they make, as well as the referred-to-present value of any payoff from it, are anchored to the interest rate. And the recent upward movement in the interest rate -- not to mention high inflation -- has drastically (relative to the ~0% interest days) raised the costs and lowered the payoffs.

Tech (both Big Tech & startups) is also getting hammered hardest first here mostly because those are the ventures that attracted investment of the lion's share of 0%-minted dollars, and that investment is vaporizing at the same time that the ROI (payoffs - costs) on lots of those firms' WIP has gone negative.

[sarlalian]

Need? No. But they can invest cash on hand into things that have a higher yield than the base interest rate, and operate the business using loans at the base interest rate.

[kevinh456]

Even Apple with its giant cash war chest uses loans. A lot of their money is in offshore subsidiaries and would incur a tax if they on-shored it to the United States. It’s often cheaper to borrow money and pay it off with earnings than to pay taxes on the money.

[giaour]

Every price includes an interest rate derivative, even if you pay with cash.

If interest rates are high, then buying something has a higher opportunity cost since you're forgoing earning interest on your capital. As patio11 put it in https://www.bitsaboutmoney.com/archive/banking-in-very-uncer..., "when interest rates rise, all asset prices must fall."

[Workaccount2]

Good read, thanks

[rwmj]

Cashflow is hard ... On the one hand you must pay 200,000+ employees everywhere in the world at regular intervals without fail. But on the other hand, the cash to do that is tied up in various places, it's in a different country, it's in various interest-bearing bonds or shares that cannot be redeemed quickly, or it's even in future revenues that you've not received yet. And it wouldn't be efficient to have a massive cash float on hand in country-specific bank accounts, when that money could be invested profitably.

[ChatGTP]

Must feel nice to be so valued.

[websitejanitor]

Yes. It's actually uncommon for a business not to take loans out. You can see how much a public company owes in the balance sheet: https://finance.yahoo.com/quote/MSFT/balance-sheet/