Turnaround

What does 'Turnaround' mean

A turnaround is the financial recovery of a company that has been performing poorly for an extended time. To effect a turnaround, a company must acknowledge and identify its problems, consider changes in management, and develop and implement a problem-solving strategy. In some cases, the best strategy may be to cut losses by liquidating the company rather than trying to turn it around.

BREAKING DOWN 'Turnaround'

Possible characteristics of a troubled company in need of a turnaround include revenues that do not cover costs, an inability to pay creditors, layoffs, salary cuts for officers and a significant decline in stock price. Poor management and/or social, technological and competitive changes may have caused the products or services the company sells to be perceived as subpar by consumers. A speculator may profit from a turnaround if he accurately anticipates the improvement of a poorly performing company.

A turnaround refers to steady, positive movement experienced after a significant period of performance decline. Turnarounds can be experienced in a particular business, a larger-scale economy, a particular market or an individual’s financial situation.

Catalysts for a Turnaround

Turnarounds are rarely spontaneous. Instead, they are often the result of increased efforts or changes in current practices. Internally, this can include updates to manufacturing processes, changes in management strategies or significant reductions in certain spending categories. Turnarounds may also be spurred by outside forces, such as a business experiencing a turnaround due to changes in regulations resulting in higher profits, or the lowering of raw material costs that unexpectedly rose, such as with fuel prices.

Turnaround Situations

On an individual level, a person who experiences a long period of unemployment, accompanied by financial hardships, may experience a turnaround upon securing new employment with a reliable source of income.

A business may determine a turnaround has occurred after changes in the business model bring in profit instead of the previously experienced losses. Often, this relates to significant increases in sales or notable reductions in spending.

Economies suffering through a recession experience a turnaround when they begin to record a new period of economic growth and financial gain. Specific industries, such as the automotive industry, can also be the subject of a turnaround if a downward trend is followed by a reversal of that trend.

Turnaround Example

In the auto industry, General Motors provides a leading example of a company that has undergone a turnaround. In the late 2000s, the auto industry suffered troubled times. Declining sales leading up to the 2008 financial crisis followed by a tightened lending environment for auto sales were two factors that significantly slowed revenue and earnings for U.S. automakers. In 2009, General Motors declared bankruptcy as a result of the crisis, and its stock was delisted from trading.

Bailout funds and its bankruptcy helped the company to restore its manufacturing production and sales. In 2010, after a complete reorganization, GM’s stock began trading again with increased production and sales.

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