In an environment of rising interest rates, lets assume we have a few scenarios:
Company A: Low leverage (minimal debt to equity), high cash, high A/R, low A/P
Company B: High leverage, High cash, High A/R, High A/P
Company C: High Leverage, low cash, high A/R, low A/P
How will each company be impacted in this situation? Would also like to know the impact from an ROE / ROA perspective.
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Depends on their exposure to interest rates (ie if they have floating rate debt, is it completely hedged?). Also, does the company rely heavily on debt financing, either to refinance their existing debt or maybe they are very acquisitive and use debt as a significant funding source. In both cases, return will go down. On both roa and roe.
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