Recession is a common word that we’ve been hearing a lot lately due to multiple economic and political reasons, economists refer to the term Recession as the significant decline in economic performance that lasts for a period of time usually over two quarters of a year. Nevertheless, there are other Indicators that are measured when determining a recession such as a decline in real income, a significant rise in unemployment rates, a decline in consumer spending, and also a decline in industrial production or retail sales. It’s important for us and especially investors to understand that it’s totally normal for a recession to happen and that it occurs basically because the economic activity in general is cyclical and it gets triggered by factors that are somehow connected to each other.
There are several factors that have led the world into this coming recession such as the coronavirus pandemic which caused a complete shutdown in the economies worldwide for a long period of time, also the increase in interest rates by the major central banks to fight inflation made borrowing money become extremely expensive leading both consumers and businesses to spend less.
The world’s major economies are threatened by the upcoming recession, there are many industries that are considered to be recession-proof as they’re more likely to perform well especially during a recession, because even when the income drops and consumer spending are cut down, individuals still need to purchase their necessities as groceries, For instance, individuals still need transportation to get transported from a place to another in order to get the essential goods or at least go to work. Therefore, it’s more likely that the transportation industry will be among the major industries that will continue to perform well even in the middle of a recession, Not only groceries and transportations but also the health care industry, which an individual will not be able to reduce their spending on, perhaps humans will always prioritize their health no matter what, leading undoubtedly the healthcare industry to also continue performing well during the hardest economic times, education could possibly be another industry that will remain stable as parents ensure to send kids to schools as one of the major life necessities, however the educational industry might even experience growth during the economic downtrend, especially the online education industry as adults will ensure to develop new skills in order to boost their earning power especially when jobs are being lost.
Conclusively, there are several recession-proof industries that happen to be a great investment but first, it’s important for investors to look over the crucial financial signs that ensure a company’s performance is healthy especially during a recession, to begin with, ROE, which is considered to be the best way when coming into a conclusion as it basically shows what is the company's ability to return a profit on shareholder's equity. Another financial sign to look over is liquidity which shows exactly the firm’s ability to manage its short-term obligations with both cash and assets on hand, perhaps, another ratio to be taken into consideration is solvency, the company’s ability to overcome their debts obligations in general and not just over a short period of time. Furthermore, an investor has to look over the profitability, while liquidity and solvency both are considered two important ratios to measure the financial performance of a company, the profitability on its behalf plays the most crucial role in the measurement equation, especially during a recession, a good metric for evaluating and calculating the profitability is the net margin on which where the ratio of net profits to the company’s total revenues. The larger the net margin in comparison with the industry, indicates a greater margin of financial stability and also reveals that a company is in a better financial situation to perform financial growth.
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