Economics During COVID-19: Impact & Cash Flow Best Practices
Economics During COVID-19:
Impact & Cash Flow Best
Practices
Economics During COVID-19:
Impact & Cash Flow Best
Practices
Speakers
Patrick Gilbert, Director, [email protected]
Greg Knight, Director, [email protected]
Chad Moutray, Chief Economist, [email protected]
Presented by:
Updated April 15, 2020@chadmoutray
Manufacturing
Indicators
40
42
44
46
48
50
52
54
56
58
60
62
Jan-19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar
ISM® Manufacturing Purchasing Managers’ Index®
(January 2019 – March 2020)
Purchasing Managers' Index New Orders Production Employment Exports
Source: Institute for Supply Management
93.5% 95.1%
92.5%
88.7%89.5%
79.8%
67.9% 67.6%
75.6%
2018:1 2018:2 2018:3 2018:4 2019:1 2019:2 2019:3 2019:4 2020:1
NAM Manufacturers’ Outlook Survey by Quarter(First Quarter 2018 – First Quarter 2020)
Note: Percentage of respondents who characterized the current business outlook as somewhat or very positive.
-10.0%
-9.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar
Percentage Changes in Manufacturing Production(March 2019 – March 2020)
Manufacturing Durable Goods Nondurable Goods
Source: Federal Reserve Board
-10%
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar
Year-Over-Year Industrial Production Growth(March 2019 – March 2020)
Industrial Production Manufacturing Durable Goods Nondurable Goods
Source: Federal Reserve Board
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
85
90
95
100
105
110
Manufacturing Production and Capacity Utilization (January 2008 to March 2020)
Manufacturing Production Manufacturing Capacity Utilization
Manufacturing
Production (SIC)
(2012=100)
Manufacturing
Capacity
Utilization (SIC)
Source: Federal Reserve Board
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Apr-19 May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar Apr
Regional Federal Reserve Bank Manufacturing and Business Surveys
(April 2019 – April 2020)
Kansas City New York Philadelphia Richmond Dallas
Index
(Growth >0)
Source: Regional Federal Reserve Banks
46.146.9
50.1
44.8
47.8
45.4
50.5
44.2
48.4
43.2
Canada Mexico China Japan United
Kingdom
Germany Netherlands South Korea Brazil France
IHS Markit Purchasing Managers’ Indices® for the Top 10 Export Markets for U.S. Manufactured Goods
(March 2020)
Source: IHS Markit
Note: Top 10 Export Markets Based on 2019 Data from the U.S. Commerce Department
Emerging Markets Manufacturing PMI: 49.1Eurozone Manufacturing PMI: 44.5
Global Manufacturing PMI: 47.8U.S. Manufacturing PMI (Markit): 48.5
269
1
147
210
85
182 194 207 208 185
261
184214
275
-701
20 5 -3 2 0 9 7 3 3 -41
58
-2 -22 13 -18
Jan-19 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar
Monthly Changes in Employment(January 2019 – March 2020, in Thousands of Employees)
Nonfarm Payrolls Manufacturing
Source: Bureau of Labor Statistics
0
1000
2000
3000
4000
5000
6000
7000
8000
Weekly Initial Unemployment Claims, 2007-2020(in Thousands, Seasonally Adjusted)
Source: Bureau of Labor Statistics
0
1000
2000
3000
4000
5000
6000
7000
Continuing Unemployment Claims, 2007-2020(in Thousands, Seasonally Adjusted)
Source: Bureau of Labor Statistics
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
Mar-19 Apr May Jun Jul Aug Sep Oct Nov Dec Jan-20 Feb Mar
Percentage Changes for Retail Spending by Month(March 2019 – March 2020)
Retail Sales Excluding Autos Excluding Autos and Gasoline
Source: Census Bureau
Economic
Outlook
2.5% 3.5% 2.9%1.1%
3.1%2.0% 2.1% 2.1%
-8.0%
-30.0%
15.0%
1.5%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2018:I II III IV 2019:I II III IV 2020:I II III IV
Real Gross Domestic Product(Chained 2012 Dollars)
Real GDP Forecast:↑ 2.9% (2018)
↑ 2.3% (2019)
↓5.0% (2020)
↑ 2.3% (2021)
Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model
90
92
94
96
98
100
102
104
106
108
110
2016 2017 2018 2019 2020
Actual and Predicted Manufacturing Production Growth(NAICS, 2012=100)
Actual Manufacturing Production Predicted Manufacturing Production
Manufacturing Production:↓ 0.7% (2016) ↑ 2.1% (2017)↑ 2.7% (2018)↑ 0.0% (2019)↓ 6.5% (2020)↑ 2.6% (2021)
Source: Federal Reserve Board, NAM calculations using Moody’s Analytics simulation model
Comparisons
with Previous
Recessions
Recession Dates
January to June
1980, and July
1981 to
November 1982
July 1990 to
March 1991
March to
November
2001
December 2007
to June 2009 February/March 2020 to TBD
Gross Domestic Product
(largest quarterly decline during
the recession period)
-8.0% in the first
quarter of 1980
-3.6% in the
fourth quarter of
1990
-1.7% in the
third quarter of
2001
-8.4% in the
fourth quarter of
2008
-24% to -30% in the second quarter of
2020; for 2020 as a whole, -3.5%
Unemployment Rate
(peak unemployment rate during
or right after the recession period)
10.8% on
November and
December 1983
7.8% on June
1992
6.3% on June
2003
10.0% on
October 2009
14-15% in May 2020 before starting to
pull back to roughly 9% by the fall
Manufacturing Employment
(total lost employment during or
right after the recession period,
peak to trough)
2.1 million
workers between
June 1981 and
Dec. 1982
1.3 million
between Mar.
1989 to July
1993
2.95 million
between Sept.
2000 to Jan.
2004
2.3 million
workers between
Dec. 2007 and
Feb. 2010
1,500,000 workers over the next three
months before rebounding; or 600,000
by year’s end
Manufacturing Production
(total percentage of lost output in
the sector, peak to trough)
-9.1% between
May 1981 to
Nov. 1982
-2.0% between
Aug. 1990 to
Jan. 1992
-6.1% between
July 2000 to
Oct. 2001
-20.8% between
Dec. 2007 to June
2009
Down 12.0% between Feb. and May
before rebounding; output down 6.5%
in 2020 overall relative to last year
Manufacturing Value-Added
Output (total percentage change,
peak to trough)
-11.0% between
Q4:2006 to
Q4:2009
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, Moody’s Analytics
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1980 1985 1990 1995 2000 2005 2010 2015
Quarterly Percentage Changes in Real GDP, 1980–2019
Source: Bureau of Economic Analysis
0%
2%
4%
6%
8%
10%
12%
Monthly Unemployment Rate, 1980–2019
Source: Bureau of Labor Statistics
10
11
12
13
14
15
16
17
18
19
20
Monthly Employment in Manufacturing, 1979–2020(in Thousands of Workers)
Source: Bureau of Labor Statistics
40
50
60
70
80
90
100
110
120
Monthly Manufacturing Production, 1980–2020(NAICS, 2012=100)
Source: Federal Reserve
50
60
70
80
90
100
110
University of Michigan and Thomson Reuters Consumer Sentiment Index, 2004–2020
Source: University of Michigan/Thomson Reuters
Presented by:
Exhibit 1 – BKD COVID‐19 Business Planning Framework
Now13‐Week Cash Flow Roller
1. Customer Plan 2. Vendor Plan3. Labor Plan
4. Material Resource Plan5. Financing Plan
How do I optimize my cash flows?
How do I identify critical liquidity
gaps?
“Bottom‐Up” Economic Model
How do I analyze varying levels of complexity and uncertainty?
Financial Statement Model
Analyze
Sales and Margins Analysis
Labor Model
Overhead Spend
Operating ModelHow do I adapt my operating model?
Projection Tools – Forecasted IS, BS, CF
Adapt
How do I realign my strategy to accomplish objectives?
Inform
Business Strategy
FOR MORE INFORMATION // Please contact Greg Knight at [email protected] or 317.383.4296
Vendor Input
SBA Loans
Customer Input
Labor Input
Assess Plan
1‐4weeks
5 – 39 weeks
Accounts Payable
Known Purchases
Orders
Inventory
Payroll Registers
Debt Service& SBA Loan
Options
Forecasted Sales Orders
Forecasted Operating/
SG&A Spend
Known Sales Orders
Forecasted Material
Purchases
Received, Not Invoiced
Shipped, Not InvoicedAccounts
Receivable
Exhibit 2 – 13‐Week Cash Flow Data Sources
FOR MORE INFORMATION // Please contact Greg Knight at [email protected] or 317.383.4296
1. Customer Plan
2. Vendor Plan
4. Material Resource Planning
3. Labor Plan
5. Financing Plan
BKD COVID‐19 Webinar Series
Exhibit 3 ‐ 13‐Week Cash Flow Projection Example
Q2 Q3 Q4
Week Ending Line 4/10 4/17 4/24 5/1 5/8 5/15 5/22 5/29 6/5 6/12 6/19 6/26 7/3 7/10 10/9/20 1/8/21 4/9/21
Week Number Ref. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14‐26 27‐39 40‐52
Cash flows from operating activities:
Cash received from customers (PLAN 1):
Accounts receivable (past) 1 ‐ 2,800 3,000 3,800 3,500 2,600 2,600 1,000 400 200 ‐ ‐ ‐ ‐ Shipped, not invoiced (past) 2 ‐ 140 150 190 175 130 130 50 20 10 ‐ ‐ ‐ ‐ Known sales orders (present) 3 ‐ 90 80 15 15 60 70 160 195 190 190 190 190 190 Forecasted sales orders (future) 4 ‐ 900 800 150 150 600 700 1,600 1,950 1,900 1,900 1,900 1,900 1,900
Cash paid to suppliers (PLAN 2 & 4):
Accounts payable (past) 5 ‐ (2,300) (2,800) (2,300) (2,900) (1,800) (1,000) (100) ‐ ‐ ‐ ‐ ‐ ‐ Received, not invoiced (past) 6 ‐ (115) (140) (115) (145) (90) (50) (5) ‐ ‐ ‐ ‐ ‐ ‐ Know purchase orders (present) 7 ‐ (63) (56) (11) (11) (42) (49) (112) (137) (133) (133) (133) (133) (133) Forecasted material purchases (future) 8 ‐ (630) (560) (105) (105) (420) (490) (1,120) (1,365) (1,330) (1,330) (1,330) (1,330) (1,330)
Cash paid to non‐material vendors (PLAN 2):
Accounts payable (past) 9 ‐ (100) (100) (100) (100) (300) (300) (300) (300) (300) (300) (300) (300) (300) Received, not invoiced (past) 10 ‐ (20) (20) (20) (20) (60) (60) (60) (60) (60) (60) (60) (60) (60) Known overhead expenditures (present) 11 ‐ (10) (10) (10) (10) (30) (30) (30) (30) (30) (30) (30) (30) (30) Forecasted overhead expenditures (future) 12 ‐ (3) (3) (3) (3) (8) (8) (8) (8) (8) (8) (8) (8) (8)
Cash paid for labor (PLAN 3):
Payroll 13 ‐ (1,100) (300) (300) (300) (1,100) (200) (200) (200) (1,100) (300) (300) (300) (300) Fringe benefits (payroll tax, health, workers' comp.) 14 ‐ (275) (75) (75) (75) (275) (50) (50) (50) (275) (75) (75) (75) (75) Temporary contractors (1099) 15 ‐ (110) (30) (30) (30) (110) (20) (20) (20) (110) (30) (30) (30) (30)
Net cash provided by (used) in operating activities 16 ‐ (796) (64) 1,087 142 (845) 1,244 806 396 (1,046) (176) (176) (176) (176)
Cash flows from investing activities (PLAN 5):
Capital expenditures 17 ‐ (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) Proceeds from sale of assets 18 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Net cash provided by (used) in investing activities 19 ‐ (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10) (10)
Cash flows from financing activities (PLAN 5)
Payments on line‐of‐credit 20 ‐ (781) (685) (505) (509) (548) (633) (619) (677) (484) (90) (191) (423) (300) Inflows:Borrowings from notes payable 21 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Borrowings from Economic Injury Disaster Loans (EIDL) 22 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Borrowings from Payroll Protection Program (PPP) 23 4,625 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Forgiveness of Payroll Protection Program 24 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Outflows:Principal payments on notes payable 25 ‐ (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) (5) Principal payments on Economic Injury Disaster Loans (EIDL) 26 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Principal payments on Payroll Protection Program (PPP) 27 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Interest payments 28 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Net cash providing by (used) in financing activities 29 4,625 (786) (690) (510) (514) (553) (638) (624) (682) (489) (95) (196) (428) (305)
Effect of changes in cash 30 4,625 (1,592) (764) 567 (382) (1,408) 596 172 (296) (1,545) (281) (382) (614) (491)
Cash, beginning of period 31 ‐ 4,625 3,034 2,270 2,837 2,455 1,048 1,643 1,815 1,519 (26) (307) (688) (1,302)
Cash, end of period 32 4,625 3,034 2,270 2,837 2,455 1,048 1,643 1,815 1,519 (26) (307) (688) (1,302) (1,792)
Key:
Cash inflows
Cash outflows
Cash flow resulting from PPP loans
Effect of net cash flows on line‐of‐credit
Positive cash position
Negative cash position
FOR MORE INFORMATION // Please contact Greg Knight at [email protected] or 317.383.4296
Q1
BKD COVID‐19 Webinar Series
Exhibit 4 ‐ Contribution Margin (Revenues less Variable Cost)
Quadrant A Quadrant B
Quadrant C Quadrant D
Contribution Margin
Revenue
Customers
FOR MORE INFORMATION // Please contact Greg Knight at [email protected] or 317.383.4296