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? Well saying how there has only been one recession where they have kept track of both of data points I’m using. The worst that happened to automobile sales is that it declined by 23.8% in 4th quarter 2008.
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 based on the data from the charts the Industry seems like goes into recession slightly before the economy or the same time, to go into recession before the economy does. If I were to say maybe a month or 2 earlier not much more than that.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months? I would say again the industry seems to recover almost at the same time as the national economy maybe a little head but again it doesn’t seem like much like again maybe a month or two it might be ahead.
How long does the industry typically take to recover from a recession? Well again saying how we are running on data from only 1 recession, it’s hard to say and not every recession is equal. Going on the data their from their worst quarter in declining sales which was 23.8% in Q4 2008, but Q3 2009 they had a growth of 1.4% in sales. So I feel like you could argue that it’s 9 months or you can get data from the beginning when it started to dip in 2008 to 2009 so in that case. From Quarter 1 2008 where they industry shrunk by 5.3% to Q3 2009 I feel you could also say it typically takes 18 months for the Industry to recover from a recession.
Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.
| 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. |