The Euribor is back above 3%.
For households with a variable-rate mortgage, the implication is relatively straightforward: when the reference rate rises, the cost of the mortgage eventually rises with it.
For a company, the relationship is less direct.
A higher Euribor does not automatically mean that every business will face a significant increase in financing costs. Some companies have fixed-rate debt. Others have little financial debt at all. Some have enough cash to absorb higher interest costs, while others may have substantial variable-rate debt or refinancing needs approaching.
This is why looking at the Euribor in isolation can be misleading.
The more useful question for a company is not simply “Where is the Euribor?”
It is “How does a change in interest rates affect our business?”
That distinction is particularly relevant today. The ECB raised its three key interest rates by 25 basis points in September, taking the deposit facility rate to 2.50% and the main refinancing rate to 2.65%. At the same time, the 12-month Euribor moved from 2.954% in August and has traded above 3% during September. The September monthly average is still provisional.
For businesses, however, the headline number is only the beginning.
The same Euribor can mean very different things
Imagine two companies with €5 million of debt.
The first has most of its debt at fixed rates, with maturities spread over several years. The second has variable-rate debt and needs to refinance a significant portion of it next year.
The Euribor can be exactly the same for both companies.
The financial consequences will not be.
This is why analysing interest-rate exposure should start with the structure of the balance sheet rather than simply following the latest rate announcement.
What percentage of debt is fixed or variable? When does each facility mature? What happens when existing financing is refinanced? Are there hedges in place? How much cash does the company hold? And, perhaps most importantly, how much cash does the underlying business generate before financing costs?
These questions turn a macroeconomic issue into a company-specific financial analysis.
The cost of debt is only one part of the problem
It is tempting to think about higher interest rates simply as an additional expense in the income statement.
If interest expense increases by €200,000, the company makes €200,000 less profit before tax.
But the consequences can go much further.
Higher financing costs reduce cash generation. Lower cash generation can reduce the company’s ability to invest. And if the company relies on external financing to fund working capital or expansion, higher rates can increase the amount of capital required to achieve the same level of growth.
The effect can therefore move through the entire financial model.
A company with €10 million of revenue and a 10% operating margin may initially appear comfortable. But if it also has substantial debt, long customer payment terms and significant working capital requirements, higher financing costs can arrive at the same time as other pressures on cash.
This is why analysing the interest-rate effect through the P&L alone is insufficient.
The balance sheet and cash flow statement matter just as much.
The companies that need to pay attention are not necessarily the most indebted
Debt is an obvious starting point, but it is not the only variable.
A highly leveraged company with predictable cash flows, strong margins and long-term fixed-rate financing may be less exposed in the short term than a company with less debt but highly variable financing and weak cash generation.
The timing of refinancing can be particularly important.
A company may currently be paying relatively low interest because its debt was arranged several years ago. That does not necessarily mean its future financing costs will remain at the same level.
If €3 million of debt matures next year and has to be refinanced at a materially higher rate, the relevant question is not what the company is paying today.
It is what the company will have to pay when that debt rolls over.
A financial model can be particularly useful here because it shows not only the current cost of debt, but how that cost could evolve as different facilities mature.
Interest rates can also change investment decisions
There is another effect that is easier to overlook.
Higher interest rates change the economics of future investments.
Imagine a company considering a €5 million expansion project. At one cost of capital, the expected cash flows might justify the investment. At a higher cost of financing, the same project may produce a much less attractive return relative to the capital required.
Nothing about the operational project has necessarily changed.
The financial environment has.
This matters because companies are constantly deciding where to allocate limited capital: towards new employees, additional capacity, acquisitions, technology, debt repayment, working capital or simply maintaining a stronger liquidity position.
When the cost of capital changes, the relative attractiveness of those alternatives can change as well.
Higher Euribor should therefore not be viewed only as a financing problem.
It can also become a capital allocation problem.
The useful exercise is not predicting the next Euribor
Management does not need to know exactly where Euribor will be in twelve months to make a sensible financial plan.
What matters more is understanding what happens to the business under different assumptions.
For example, a company could model a base case, a scenario in which financing costs increase by 100 basis points, and another in which they increase by 200 basis points.
But the scenarios should not simply change the interest expense.
A good scenario should allow the variables to interact.
Higher rates may coincide with weaker demand. Weaker demand may reduce revenue and margins. Lower profitability may reduce operating cash flow. Lower cash generation may increase reliance on credit facilities. At the same time, refinancing may become more expensive.
The value of the scenario is precisely in understanding these connections.
A company might discover that a 1% increase in its average interest rate is manageable if revenue and margins remain stable, but becomes much more difficult if revenue falls by 10% at the same time.
That is a very different insight from simply calculating the additional interest expense.
Preparing for higher rates is really about financial resilience
Companies cannot control the Euribor, monetary policy or inflation.
They can, however, understand how exposed they are to them.
They can review their debt maturity profile, assess refinancing needs before they become urgent, understand the relationship between debt and cash generation, evaluate which investments still make sense at a higher cost of capital, and model what happens if several assumptions deteriorate at the same time.
The objective is not to predict whether Euribor will be higher or lower next year.
It is to know what that would mean for the business if it were.
Because the most useful financial analysis does not tell management what the future will be.
It shows how prepared the business is for different versions of it.
