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The five exhibits in this report demonstrate how distribution organizations weathered the recession of 2002-2003 and recovered in 2004. On each of the chart's graphs, the “All Distributors” number reflects the median results across 40 different lines of trade where the Profit Planning Group collects data on an annual basis.
The median result minimizes the impact of unusual circumstances in one or two industries. It can truly be thought of as representative of all of distribution. On each exhibit, results are shown for all of distribution and for your unique line of trade. In any instances in which the graph does not show a line, the appropriate figure is zero.
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Almost every one of the 40 lines of trade
experienced a decline in ROA in 2003 and a sharp recover
in 2004. ROA is profit before taxes expressed as a percentage
of total assets (or total investment) in the business.
In 2003, the typical figure dropped below 5.0%, which
is the point at which firms should begin to think about
asset redeployment.
In 2004, ROA returned to acceptable levels,
coming in at just over 7.0%. However, even this figure
is slightly below desirable performance. Industry ROA
levels in the 8.0% to 12.0% range are considered good.
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Operating expenses followed the classic pattern of recession
and recovery. Specifically, operating expenses increased
as a percent of sales in 2003 due to stagnant sales
growth in the best case and declining sales in the worst
case. During 2004, the pattern reversed as reasonable
levels of sales growth returned.
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The overall change in gross margin percentage
from year to year followed a counter-intuitive pattern. In
2003, the typical industry added slightly less than half a
point to its gross margin percentage, despite recessionary
pressures. During the recovery, gross margins then actually
declined.
On an industry-by-industry basis, there were
significant deviations from this pattern. However, overall
firms found ways to use margin to offset the impacts of recession
during the down year, but then moderated those changes somewhat
during the period of recovery.
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| There was very wide variation in
the inventory turnover pattern. However, for the
amalgamation of industries studied, there were modest
increases in inventory turnover in both 2003 and
2004. This reflects the continuing emphasis on cash
flow management throughout distribution. Of all
the factors that drive cash flow, inventory is by
far the most controllable. |
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| Not surprisingly, the collection
period stretched out slightly in 2003. Despite the
importance of accounts receivable on cash flow,
firms always become more willing to let payments
stretch out during a recession. The fact that the
collection period continued to move up in 2004 reflects
a reluctance to make dramatic moves in collections
until the recovery is completely solidified. Collections
will likely come back into line in subsequent years. |
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