Companies that had the best shareholder returns in previous recessions have done these three important things

There is no guarantee of a recession in 2025, Wall Street’s increase bet There is one Companies focusing on cost savings To prepare for the negative impacts of President Donald Trump’s tariff pilot.

For bids to save money and survive economic headwinds, some companies rely on massive layoffs.

Siemens teeth Let go of 5,600 staff Work is reduced all over the world Website It will affect Approximately 2,000 members of that workforce.

But there is good data that shows that there is more to survive the recession than cuts. In fact, it may be time to seize market share and reinvest in your business.

McKinsey During the peak of the Great Recession (2007–11) and the Coronavirus Pandemic (2020–21), I studied about 1,200 public companies in the US and Europe, and found that the companies that had the best shareholder return in this period were companies that did three things.

Lesson 1: Improve margins when the economy falls into a recession

A study by McKinsey shows that across the sector, leaders who improve margins or earn early in recession have improved their total shareholders’ return rates over the economic cycle than their colleagues. Essentially, pushing up margins allows businesses to squirt more capital.

“Margins make businesses easier through macro headwinds. Many companies achieve margin strength by improving operational efficiency through upskills to improve frontline productivity and digital innovation,” the report states.

The key is to improve the margins early Performance has provided greater returns than early revenue growth. Meanwhile, companies that led revenue growth but fell behind EBITDA peers (revenue before interest, taxdepreciation, and amortization) margin performance did not emerge from either recession.

The study argues that this means leaders must look at both long-term growth opportunities and short-term “timely shocks.”

Lesson 2: Balance sheet options are essential

History shows that companies that do small things to grow in maintaining revenue, improving working capital and lowering their debt burden are better than those who don’t.

Balance sheet options – a combination of growth in working capital maintenance on the one hand and improvement in working capital, and a decrease in financial leverage on the other hand – helps in and out of particularly constrained credit periods.

This wasn’t particularly important in the last economic downturn of 2020, when interest rates were low. However, they will build options during the 2007-2008 financial crash. This was key to success if interest rates started at a level comparable to today.

Similarly, debt refinancing companies have faced significantly higher costs than they have in recent years due to rising interest rates. They have to reinvest in new opportunities to reduce financial leverage and drive growth and productivity, and “as the economy begins to recover, they are better than their competitors in pursuit of Accretive M&A.

“Companies with deep, flexible balance sheets have better protection from the risk of slowing, but also have reserves to pursue the valuable growth opportunities offered by the recession recovery stage,” the report adds.

Lesson 3: Timing and balance are important

Companies need to take a balanced approach to growth, improving margins and balance sheet options.

Interestingly, the top 20-40% of companies in all three dimensions outperformed the best companies in one dimension, reaching 60% in the other. Therefore, all three balanced performances resulted in better returns over superior performance due to only one factor.

But most importantly, they acted positively rather than reactively.

Companies that had consecutive ducks before the economy collided can use their balance sheet strength to invest in their businesses, such as by acquiring new businesses and staff.

Certainly, industries with cash-rich and long-term investment perspectives are better positioned to do this. But overall, strategies to increase growth and margin levers ahead of time rather than making dramatic last minute cuts have proven to work in all sectors.

As McKinsey states in his report, “It is clear that moving early in the recovery cycle will result in trait rewards.”

The original version of this story Fortune.com It’s January 16th, 2023.

Management details:

• Americans I want more US factory jobs-Unless they need to make them work
• Starbucks Workers will be needed Throw away the colorful shirt I support black tops and neutral pants
• Over 60% of CEOs Predict a recession or slowdown In the coming months

This story was originally introduced Fortune.com