Kavan Choksi on Down Revenues from the Recession
The American economy has been experiencing a noticeable decline in corporate earnings and sluggish growth since the third quarter of 2022, and unfortunately, this trend appears to be persisting well into the first quarter of 2023. The causes of this slowdown are multifaceted, and experts suggest that it is due, in part, to the persistent core inflation and frequent rake hikes. As the economy grapples with these challenges, many business owners are understandably concerned about what comes next. Given these mounting financial pressures, there is a growing sense that an oncoming recession may be all but inevitable. While there is much uncertainty about the future, one thing is clear—companies nationwide must remain vigilant and proactive to navigate these turbulent financial waters.
According to freelance business and financial consultant Kavan Choksi, investors must also parse how efficiently companies manage pricing and control costs. They should also maintain margins during this challenging time. Meanwhile, companies need to focus on determining more chances for growth since borrowing is not recommended during this downturn.
Corporations entered 2022 from a strong position. Kavan Choksi explains that the reopening of the economy after the lockdown due to the pandemic drove revenues and margins upward. It resulted in one of the quickest economic turnarounds in recent history. However, as central banks scrambled to control inflation, the probability of a recession loomed large. The Fed recently pegged the probability at 50 percent for the U.S. economy. The Bank of England, on the other hand, has shown signs that it believes the U.K. is most likely headed toward a recession.
Typically, a recession results in lower corporate earnings, adds Kavan Choksi. Higher rates have already translated to slower growth. As mentioned earlier, corporate earnings started to decline during the third quarter of 2022. This trend will likely continue in 2023.
Where companies find growth opportunities will be important because borrowing costs will likely remain unattractive. Corporate activity may include more spinoffs, consolidations, or creative M&A structures, rather than leveraged buyouts. Such an environment is better for the more seasoned, disciplined management teams. Because of this, Kavan Choksi suggests that investors consider the effectiveness and experience of a company's managers, especially when evaluating how cautiously investor capital will be moved through a shrinking economy.
Kavan Choksi is a freelance business management consultant. He has always shared his business, finance, and economics insights with his readers. Nowadays, he works on his series of blogs, which can be accessed by clicking this link.