The Comprehensive Guide on How to Read a Financial Report: Wringing Vital Signs Out of the Numbers, + Website

CHAPTER 24

OUR CASE STUDY AND THE MORAL OF THE STORY—THE GOOD, THE BAD, AND THE UGLY

The Changing Economic Environment

As we left our two case study companies back in Chapter 13, HSI’s financial performance and balance strength was noticeably better than TTI’s. Further, it appeared the outlook for HSI was stronger than TTI given their respective recent performance. But this analysis was completed before, and I quote Mr. Burl Ives from his narration of Rudolph the Red-Nosed Reindeer when a horrible blizzard hit just before Christmas, “Well, he was just about to leave when suddenly ... It hit!, the storm of Storms and only two days before Christmas.”

Translation for our two companies: The storm that hits both HSI and TTI in the second quarter of 2013 is the equivalent of the Great Recession that reshapes companies and industries across the economy. Further, each companies’ business model will be significantly impacted by the following three events and changing trends:

1. Access to capital, debt, or equity, is restricted during the year as companies and financing sources scramble to conserve liquidity (or cash). So neither HSI nor TTI can approach debt or equity sources to secure funding.

2. Customer buying patterns abruptly change during the second half of the year. More customers defer or delay large capital investments, and when they do purchase, demand the most up-to-date technological solution and restructure payment terms, moving away from a prebilling for the annual licenses ...