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. A turnaround may also refer to the recovery of a nation's or region's economy after a period of recession or stagnation.

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 de-listed 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.

RELATED TERMS
  1. Bankruptcy Financing

    Financing arranged by a company while under the chapter 11 bankruptcy ...
  2. Price Change

    A price change indicates a new valuation has been made on the ...
  3. Trading Below Cash

    A company's stock is said to be trading below cash when its market ...
  4. Technical Bankruptcy

    Technical bankruptcy refers to a state of either unprotected ...
  5. Reorganization

    Reorganization is a process designed to revive a financially ...
  6. Run Rate

    The run rate is a concept of how the financial performance of ...
Related Articles
  1. Small Business

    The 5 Best Corporate Comebacks

    We'll look at five corporate comebacks in recent years where both the company's operations and share price experienced impressive rebounds.
  2. Trading

    Three S&P 500 Turnaround Plays (CL, KIM)

    Recent rally expansion has the power to float all boats, lifting beaten down S&P 500 stocks that show technical resilience in longer time frames.
  3. Investing

    Chipotle Hikes Buybacks by $100 Million

    Chipotle's new CEO is taking steps toward a turnaround that are fostering investor optimism.
  4. Trading

    Frontier Communications Could See a Dead-cat Bounce

    A look at why Frontier Communications has been struggling and whether the stock is poised to rebound.
  5. Investing

    Helpful Hints for Successfully Selecting Stocks

    There is no shortage of information available to the public about stocks. The trick is knowing what information is useful and what isn't.
  6. Investing

    Rev up Your Portfolio With Ford, GM, Tesla and Volkswagen

    For those looking to rev up their portfolio gains, we turn to several leading financial newsletter advisors and MoneyShow.com contributors who see upside potential in the auto sector, featuring ...
  7. Trading

    Can Teva Pharmaceutical Turn Around Under New CEO?

    Teva shares soared nearly 20% this week after the company finally found a new chief executive officer.
  8. Investing

    Lululemon Earnings Top Estimates, Shares Rise 10% (LULU)

    Shares of Lululemon are up 9.7% to $67.20 Wednesday morning, marking a stark turnaround for the athletic wear company following a management shake-up.
  9. Trading

    First Solar Holds 200-Day MA but Chart Could Be Bearish (FSLR)

    First Solar has fallen in recent days following its tremendous rise over the past few months, but will the stock turnaround or breakdown lower?
  10. Small Business

    The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.
RELATED FAQS
  1. Why does unemployment rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to rise during ... Read Answer >>
  2. What happens to the shares of a company that has been liquidated?

    Learn what happens to a company's shares during Chapter 11 and Chapter 7 bankruptcy proceedings, and understand how much ... Read Answer >>
  3. How can a company improve its net margin?

    Learn about what businesses can do to increase their net margin, including ways to increase sales revenue and decrease operational ... Read Answer >>
Hot Definitions
  1. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  2. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  5. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
  6. Ratio Analysis

    A ratio analysis is a quantitative analysis of information contained in a company’s financial statements.
Trading Center