Job losses - Industry- 2008 & 2009

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Companies focus on Operating Free Cash Flow in times of Uncertainty

Companies citing decline in orders, no lines of credit, debt becoming non existent or more expensive, weaker demand, rapidly deteriorating global economy, and plunging commodity prices, BRIC countries reducing demand and the US financial crisis.

Companies should have three core focus areas for 2009 -2012. These focus areas should be save cash, restructure into leaner companies to be profitable at lower sales level, and lastly to innovate new products to enhance their growth opportunities.

2009 has literally been a year of change and companies worldwide are all streamlining their business models. Being operation driven or sales driven or innovation driven was the mantra starting after the burst of the internet bubble. Now the mantra is simple “create operating free cash flow”.  The first step companies are taking before taking the axe to its employees is reducing inventory, delaying the account payables and obliging creditors to pay account receivable sooner. The complete supply chain is affected by this destocking impact leading to a more stable demand and supply module being created improving the operating working capital requirements hence improving the earnings by reducing the operating expenses.  

Operating free cash flow comprises of EBITDA+ OWCR-CAPEX. EBITDA is the earnings before interest, taxes, depreciation and amortization on the profit and loss statement and depicts the operational earnings of the company. OWCR is operating working capital requirements and this includes the account receivables from customers, plus the inventory which includes finished goods, work in progress and spare parts, minus the account payables to suppliers found in the balance sheet and to employees. CAPEX is the capital expenditure that the company plans on spending in the coming year. Taking the three components together we can check to see how much cash the company is creating in a given quarter or year and also measure the cash generation capability of a company.

Having said this companies are reducing inventories by stopping production, delaying account payables to suppliers from an average of 30 days to 60 days and also by reducing head count.

Is this the FAT that companies had accumulated during booming 2006 and 2007 or is this lean industries reducing headcounts as they have good knowledge retention programs?

A look at a list of companies  that have downsized in 2008 and 2009.

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