Analyze the data for your client company’s industry and answer the following questions.
How much have sales in the industry declined in the recession? What’s the worst that has happened in the past? -During the recession, the financial industry’s worst sales growth percentage was a 3.4% decline, which was in the last quarter of 2019. However, the worst that has happened in the past according to these charts was in the second quarter of 2019, when they had a decline in sales growth percentage of 4.0%, and the decline lasted for a significant period of time.
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 financial industry, which Bank of New Hampshire is a part of, go into recession after the overall national economy. We can see that the dent in the deep end sales of the industry data starts over a year after the beginning of the recession. I would say that the industry goes into recession about 11 months after the overall economy, but the dent in the deep end sales of the overall economy is only two months before the industry.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months? From studying the charts we can easily say that the financial industry recovers from a recession about a year after the national economy. During the recession, the financial industry lagged the national economy by a year from the start to finish.
How long does the industry typically take to recover from a recession? -From looking at the two charts of Bank of New Hampshire and the financial industry, I would say that it typically takes about two years to recover from a recession for the financial industry. However, according to the charts the industry is very unstable and dynamic, and the sales growth in percentage varies a lot. The growth percentage was at 2.6% when the recession started, and it was not back up at 2.6% again until the middle of 2010. Even though after 2010 the sales growth percentage has been up and down, this is normal for the financial industry, which is why I believe the industry can say that is has recovered from the recession. ## Grappone
Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary. It is very important in the financial industry that the relationships between vendors and customers are managed in the good times with an eye of survival in the bad times. It is also important to be very humble about your own business, and make sure that you have a detailed plan for a potential recession. For increasing financial flexibility, it is important to issue equity, long-term debt, or paying a fee for a stand-by credit line.
| 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. |
| 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. |
| 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. |