How does a company prepare for an economic recession?
Warning Signs of Economic Recession
- 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.
How did Resilient Company Prepare?
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 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.
