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Raise the Rate? Cash Doesn't Lie

The Fed raises the rate (again) to combat inflation. This refrain has been happening more often than tuning the piano. Good for your CDs, bad for many businesses? We have received more calls on harvesting cash in the last 30 days than in the last three years. Aside from seeking optimization of SG&A and working capital improvement programs, finance teams are applying the cash is king principle at a fevered pace.

The issue is growth through acquisition, new product growth and customer margin bets, along with Capex / R&D investments have surfaced cracks in platform infrastructure. The cash doesn't lie especially when the earnings / inflation squeeze is applied. Unfortunately, the pressure to take action can put strain on management teams at the same time they are managing year-end compensation, revenue generation initiatives, and the drive for (adjusted) EBITDA.

Having a solid "4" statement model contemplating the quarterly and longer-term business impacts associated with higher interest rates necessitates a stronger view (analytics) on revenue backlog and demand vectors. Throw in living with leverage and labor imbalances, we have quite the cocktail to manage.  

Yes, working capital management efforts and SG&A optimization efforts are a given to push, push, push on cash management initiatives. The question is how fast can we course correct and navigate through the chop. Align the people, focus on the issues, manage through change, and batten down the hatches... Stay tuned, this will be an old-school exercise put to the test in Q1 and beyond.

© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.

The labor market imbalance is especially inflationary in the non-housing services sector, Powell said. “We want strong wage increases — we just want them to be at a level that’s consistent with 2% inflation.”


finance, office of the cfo, perspective, financial services

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