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? At the absolute worst sales declined to -11.6% in 2008. During the last recession they declined to -11.3%.
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? There may be a slight decline right before, but I’m not sure this decline is large enough to draw a strong correlation. Comptus deals with a real decline a couple months into the recession.
Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months? Comptus recovers at the same time as the national economy. During the last recession their sales were lower than the national average, but when the economy was revitalized Comptus’ sales jumped higher than the national average.
How long does the industry typically take to recover from a recession? Typically it takes a little under 2 years. I think the more recent covid was a different type of recession, one that we hadn’t seen in the modern world. The 2008 recession took about 20 months for the economy to recover while the 2020 recession took about 12 months for the economy to recover. While the expedited version is better for everyone we can’t expect the economy to always recover that fast.
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. |