The long-term is where we need to focus on
The long-term is where we need to focus on, to be prepared for the coming crisis in order to increase opportunities to survive. Only those (individuals as well as corporations) who have their finances (again) under control, can decide on own actions. The results of companies in crisis are boosted by cost savings, cutting away what is excess, selling assets that are no longer needed, all sorts of one-off actions.
The main point is that the turnover levels of most companies have fallen. Growth in a series of years is gone. We fell into a deep well, and from the bottom of the well it goes up a little here and there. It will be a long time before we get back to where we were before.
Costs, assets and investments must be scrutinized both in good times and in bad times, then extra rigorously, along the entire value chain, from R&D through the supply chain to customer service. To care for strong balance sheets during good times, then you create flexibility and muscle in bad times, and to streamline the innovation process – ensuring that it starts with gaining the highest-quality customer insight, eliminating waste and increasing the focus on return on investment.
One needs to have sufficient cash to go through a crisis. For more than what is noted down in this article, read the book Banking, World Finance, Credit Crises ISBN 9798654198471 at Amazon and here the content of the book is given:
A top management team is essential that is tightly knit, highly communicative, and skilled at making rapid, collective commitments to action. The characteristic of a crisis is that the future is unpredictable. One laughs, another cries, the craziest things happen. The future i.e. the coming time – beyond the crisis – is reasonably predictable; there are then numerous ascending trends.
Time to invest, time to build up. Efficiency is doing things well, but first and foremost comes effectiveness, doing the right things. It must be known for each product, division or participation, how profitable it is. Throughout the entire business chain from raw materials through semi-finished products up to the distribution of end products. Not knowing period profit, people steer in the fog, not said that they are fooling themselves. It is not just about the group profit for a whole year, but especially about the detail profit of a part, your department, your project, for every desired, short period.
Those who want to survive without problems must be able to adapt flexibly to changing circumstances. In order to survive smoothly, you need buffers (financial opportunities) to buy the time needed for the adjustments. Each of the 3 concepts, liquidity, profitability and solvency, is easy to grasp. In Chapter 15 of the book Business Economics VI Groundbreaking and here the content of the book is given:
These 3 concepts are fully explained piece by piece, including the coherence between them. It is a true art to spin these 3 plates on 3 separate sticks, to which the CFO – or you as a manager of a profit-responsible business unit – must always give a sling in time as an experienced juggler does seemingly effortlessly in order to keep all 3 in the air. Central banks determine the short-term interest rate; it has been extremely low for years, lower than inflation and therefore actually it’s negative. The long-term interest rate, fixed for 10 years and more, is not in the hands of central bank or government. Inflation is also hardly a controllable thing. Expectations about the economy must therefore always be taken with the necessary grains of salt. It is certainly not possible to predict, just an expectation can be given. Financial management has to care for a healthy financial organization and how to keep everything healthy.
Authorities look like a bunch of bickering children and that is how you do not solve problems. The national debts of many countries have reached maximum levels; the really big debt problems are not in small but in large countries. Waiting and sticking, time-racking, hoping that it will go over.
Sometimes it works, but most of the time it is an illusion. UK prime minister Margaret Thatcher had a virtually bankrupt UK and then the oil bubble was discovered in the North Sea. Sometimes ruling politicians happen to be on top of it by chance and with excessive luck. But usually not.
Even the USA has to bring the expenses in line with what comes in. When the Turkish dictator Erdogan intervened with the Turkish Central Bank, the Turkish economy collapsed.
Donald Trump, USA President, did the same like Erdogan, who attacked the independence of what a Central Bank is supposed to be. On Sunday March 15, 2020, the FED interest rate went to almost zero in one fell swoop. On March 16, Stock Exchanges plunged down completely worldwide.
The zero interest rate, set by the Central Bank, is really bad for long-term savings. There are no trusted yields anymore and it also does not stimulate the real economy, it is counterproductive.
Re my free downloadable paper ‘Criticism of Long Low Interest Rate Policy of Central Banks. Many people panicked, governments got stressed by Covid-19 in 2020. Fake news, Twitter nonsense, it goes on. There is often too much fear, so that no sensible measures are taken. Human nature with its fears and idiosyncrasies will always remain an unforeseen factor. Anticipating shocks, so the ability to absorb them, is a very important precondition for stability in production and employment. All states, companies and individuals need to exercise self-control in spending, as revenues can drop suddenly in the event of unexpected calamity (so-called Cassandra, prepare for any natural or unnatural disaster) and also in anticipated long-term additional spending.
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