Week 6: Real World Applications 5

The vunerability assessment

Analyze the data for your client company’s industry and answer the following questions.

1. How much have sales in the industry declined in the recession? What’s the worst that has happened in the past?

The GDP in the recession of 2008, the growth percentage in the start of the recession during quarter two is .6%. As the recession continues, during quarter four, the growth rate declines to -2.2%. During the recession 2020 due to the global pandemic, the GDP growth rate drops to a drastically to -8.5% in the second quarter for the Bank of New Hampshire. This was the lowest point for the business during a recession.

2. Does the industry go into recession before, at the same time, or after the national economy goes into recession? If earlier or later, how many months of difference is there?

The Bank of New Hampshire seems to go into a recession at the same time during the 2008 recession, but the growth percentage for the 2020 recession decline before the recession begins. For the 2020 recession, the business starts to decline the first quarter of 2020, so around four months before the recession started.

3. Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months?

During the 2008 recession, the company begins to recover the same time the economy does. During 2009, from quarter one to four, the company gradually increases from -1.2% to 1.1%. Around 8 to 10 months the business starts to recover. During the 2020 recession, the company recovers from the recession after the national economy. However, during the recession the business drastically increases from quarter two to quarter three, which ends after the recession. They recover their GDP percentage from -8.5 to 7.9. This occurred within one quarter, so about four months.

4. How long does the industry typically take to recover from a recession?

For the Bank of New Hampshire, anywhere from four months to eight months seems to be the companies rebound time from recovering from a recession.

Grappone

Bank of New Hampshire

Comptus

Building flexibility into the business

Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.

Graponne

Question	Response from the company
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn?	Our liquidity is a major focus when we are preparing for a downturn as well as our inventory levels.  Cash is king in terms of getting through a downturn. You also need great relationships with your lenders – you hope they will stick with you when times get tough.

Bank of New Hampshire

Question

Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn?

The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges.

The company has the purchasing department and the financial planning department work together closely to obtain the best combination of low expenses plus future flexibility. With selling less profitable assets, such as low yielding loans, there wont be too much money to lose if the recession takes a downfall on the company. Conducting expensive reviews allow the company to understand what is needed to be paid for expenses within the company and to make sure they can afford these expenses.

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Comptus

Question	Response from the company
Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years. How does your company plan for a downturn?	Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production.