Page 113 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

Only 27 percent reported that managing cash flow was one of
their top three priority areas in 2009, making it sixth of 10 pri-
ority areas. As a point of comparison, 39 percent said that
expanding capacity was one of their top three priorities, and 36
percent put innovation in their top three. For 2010, our respon-
dents told us that managing cash flow was as low as eighth of
10 priorities.
This relative lack of concern about cash flow is surprising given
the fragile status of both the credit and equities markets. A return
of volatility in these two markets can be fatal for companies in a
weak cash position. Even companies with strong cash positions
can be caught off-guard by economic fluctuations given the still-
shaky status of the economy. As the saying goes, “Cash is king.”
And in unstable times, companies that do not pay close attention
to their cash position will find themselves flirting with danger.
Credit markets are far more stabilized now than they were in
the depth of the financial crisis, but the status quo is funda-
mentally different now. In recent years, commercial loans out-
standing—a measure of the amount of lending to businesses—
had been growing at more than 10 percent annually in both the
United States and Europe. In mid-2007, year-on-year growth
in total U.S. lending peaked at 25 percent.
Looking back now, of course, we can see that this level of
growth was unsustainable. Since the third quarter of 2008,
growth in commercial lending has turned negative in both the
United States and the United Kingdom, and it has been stag-
nant in euro zone countries. While this decline is driven in part
by companies paying down debt in the face of lower demand
and strained balance sheets, a major driver is a reduction in the
amount banks are able and willing to lend. Lending standards
have tightened dramatically and have yet to ease despite gov-

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