Turnaround Definition in Business and Finance Examples

Turnaround: Definition in Business and Finance, Examples

What Is a Turnaround?

When a company has experienced a period of poor performance and moves into financial recovery, it’s called a turnaround. A turnaround may also refer to the recovery of a nation or region’s economy after a recession or stagnation. Similarly, it can refer to an individual’s improved personal financial situation.

Key Takeaways:

– A turnaround is the financial recovery of a poorly performing entity.

– Turnarounds bring stability and improvement to an entity’s future.

– To create a turnaround, an entity must acknowledge problems, consider changes, and develop and implement a problem-solving strategy.

How to Affect a Turnaround

Turnarounds mark an upward shift for an entity after a significant period of negativity. It involves converting a period of loss into one of profitability and success while stabilizing the future. In investing, the term also refers to the time between placing and fulfilling an order.

Turnarounds can happen on different levels, from individuals to economies. It indicates a phase of steady and positive financial or performance recovery after decline.

In most cases, the first step in a turnaround is acknowledging the problems. Businesses may examine changes in management or problem-solving strategies. In dire situations, liquidation may be necessary.

Special Considerations

Specific features may identify an entity in need of a turnaround. For businesses, these may include declining stock prices, layoffs, and insufficient revenue to pay creditors. Changes in competitive advantage and outdated products or services may also indicate a need for turnaround strategies. Mismanagement of resources like labor and capital can also put pressure on a company.

Catalysts for a Turnaround

Turnarounds are typically the result of internal and external forces. Internally, attention is focused on process problems, spending, management, and other factors that led to decline. Externally, new regulations or lower production costs can lead to higher profits. A turnaround management team will review the primary causes of failure and devise a strategic plan, including restructuring or repositioning the business.

Example of a Turnaround

The U.S. economy experienced a recession in 2009 due to the subprime mortgage crisis and the collapse of the housing bubble. The crisis resulted in the collapse of major banks. About a year later, the economy began to experience a turnaround after the government provided bailouts and a stimulus package.

Declining sales and a tightened lending environment for auto sales significantly affected U.S. automakers. General Motors (GM) declared bankruptcy in 2009 but restored its production and sales with the help of bailout funds and bankruptcy reorganization. In 2010, GM’s stock began trading again with increased production and sales.