28 Jul 2023 2 min read

Higher US interest rates: who are the corporate winners and losers?

By Rameet Gulsin

The impact of higher interest rates varies tremendously by company. Those that hold large amounts of cash typically have little debt and vice versa. This creates clear winners and losers in the corporate world.


There’s been some discussion recently among investors that higher interest rates on deposits are actually helping companies overall. The logic is that these higher rates feed through into greater returns on companies’ cash positions, which offsets the effect of higher costs on company bank loans (as well as the future impact of companies paying higher rates on any potential debt issuance).

However, for one thing, this high-level analysis assumes that the distribution of cash and debt is evenly spread across companies. By contrast, our hypothesis is that some companies are cash rich, while others are debt poor.

In other words, there’s a broad (statistically significant) inverse correlation between cash reserves and debt levels when we adjust for firm size.

Cash rich or debt poor?

We have looked at the balance sheets of S&P 500 companies and have constructed the chart below, which highlights the relationship between cumulative cash reserves and total debt, expressed as a percentage of total S&P 500 companies (excluding financials).

We can see that large companies such as Apple*, Alphabet (Google)* and Microsoft* have lots of cash but limited debt, while many of the relatively more indebted companies have far more limited cash reserves. From the lower dotted line in the chart, we can see how only a few (22) companies hold 50% of all cash reserves in the index but only around 18% of total debt.

At the other end of the spectrum, the 10% of companies with the smallest cash holdings have around 40% of total debt, as shown by the higher dotted line.


The effect of higher interest rates is therefore one factor in creating winners and losers. Cash-rich companies are indeed likely to be profiting from higher interest rates, in addition to the fact that the share prices of many of these companies are also currently benefiting from the recent improvement in investor sentiment towards technology names.

Meanwhile, there are many debt-poor companies that do not have much cash and are therefore highly likely to be suffering under a growing current and future cost of servicing that debt. This may also help to explain why US bankruptcies are rising.


*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

Rameet Gulsin

Quantitative Economist

Ram first joined LGIM in 2015 as part of the Client Distribution team. After leaving his role to pursue research and teaching at the University of Kent, he was welcomed back into the Asset Allocation team as a Quantitative Economist in 2021. You’ll often find Ram reading from his favourite econometrics textbook. He’s recently discovered its hidden power of sending his new-born daughter straight to sleep.

Rameet Gulsin