Analysing the Cash Flows of Decline Businesses
In Chapter 3 I introduced the concept of assessing business cash flows by relating them to the pattern we expect to see for a business in the life cycle of the markets in which it operates. The final part of the business life cycle we need to examine is decline.
I define this as a business operating in a market where demand is falling. It is a consequence of change, which may be technological, environmental, demographic or be related to consumer tastes or fashion, and it occurs at some point in all industries and markets.
I do not mean a business that is being badly managed, although the label decline is also used in general English for this, a business can be badly managed in any of the four phases of its potential life.
Over the past 20 years there have been huge global changes in places where goods are manufactured. I have first hand experience of the effects of globalisation on the footwear and clothing industries in particular, as I have lived in an area seriously affected by these changes for much of my life. In both industries the majority of volume production of product for the mass market in the UK now takes place in other countries.
Many other industries, such as shipbuilding, car manufacturing, electronics and engineering have also faced similar pressures. These changes have come about due to a number of factors which have reduced the economic cost of operating at a distance from consumers. It is a combination of containerisation, ...