What is a recommended action for senior management after creating a sales projection in response to an economic downturn?

After creating a sales projection in response to an economic downturn, one of the most prudent actions for senior management is to review all relevant ratios to determine banking requirement compliance. This involves analyzing financial ratios like liquidity, solvency, and profitability to ensure that the organization can meet its financial obligations, especially in challenging economic times.

When facing an economic downturn, it's crucial for senior management to understand the company's financial health in order to respond effectively. Reviewing these ratios helps management ascertain whether the company is in compliance with any banking covenants, which may include maintaining specific ratios such as debt-to-equity or current ratios. Non-compliance could lead to increased scrutiny from lenders or even default implications, which could exacerbate financial difficulties during a downturn.

This assessment of ratios also enables strategic planning. For instance, if liquidity ratios indicate potential cash flow issues, management may need to make adjustments such as tightening credit terms or re-evaluating spending priorities. By focusing on these financial indicators, senior management can ensure that they maintain a solid foundation, allowing them to enact other measures—like potentially increasing advertising or expanding product lines—based on a clearer understanding of their financial position.