How does a company prepare for an economic recession?3328 2019-05-13 21:53
- Ballooning corporate debt .
- Government yields that are dramatically lower than the previous long-run average.
- Negative returns on the S&P 500.
- Lower GDP growth in China relative to what it was before 2010.
Back in 2008, companies turning out to have higher total shareholder return(TSR) did these things:
- By the time of reaching the lowest point of the recession, they had increased EBITDA(Earnings Before Interest, Taxes, Depreciation, and Amortization) by 10%.
- By reducing operating costs earlier in the recession, and more deeply.
- Introduce more flexibility into the investment-planing
- Reduce > $1 per $1 of total capital on their balance sheet
- Prepare far more cash than peers for acquiring assets once on the upswing of the economy.
- Maintain high-value customers’ loyalty.
- Forgo revenues from price changes, while peers are reducing the price.
However, slashing costs may hurt the brand and the company moral.
Finally, getting ahead of peers create a huge advantage.