Improved Cash Flow Marks Business Upswing in Valley

Valley-area businessmen see almost every aspect of business as having improved during the fourth quarter of 1984, according to a survey released Friday by the Woodland Hills office of Price Waterhouse.

“The Valley is recovering,” said Rock Hankin, managing partner of Price Waterhouse, who is based in the company’s Warner Center office. The businesses surveyed included manufacturing, wholesalers and distributors, retailers and service industries.

“The key improvement indicator is in the area of cash flow,” said Willy Bagg, managing associate of the Warner Center office. “And that is particularly encouraging because it is a true indicator of improvement in business conditions. Cash flow is really what drives business, and, without it, you can’t do much in the way of expansion or anything else.”

Third, Fourth Quarters Compared

Of 300 businesses in the San Fernando Valley and Ventura and Santa Barbara counties that were surveyed, 74% represented those doing under $10 million in sales. Three-fourths of the businesses are in the San Fernando Valley, according to the study.

The study compared business performance in the fourth quarter of 1984 to the third quarter.

The percentage of businesses saying they planned to increase their work force fell slightly, to 38% from 43%. However, Bagg said this was not a negative trend, since the third-quarter percentage had been a slight increase over the second quarter.

The study, another in a series that Price Waterhouse makes every three months to take the Valley’s economic pulse, was discussed jointly at a breakfast by officials of Price Waterhouse and Wells Fargo Bank, whose chief economist spoke enthusiastically about what he said he views as the economy’s potential for sustained improvement.

Improved Cash Flow Signs

Assemblyman Richard Katz (D-Sepulveda) told the 140 businessmen who attended that small business needs to increase its efforts to lobby government for what it wants. Indications of the improved cash flow among Valley companies included faster collection of accounts receivable, a decrease in slow-moving and obsolete inventory and an increase in the amount of working capital anticipated for the first quarter of 1985, Price Waterhouse officials said.

Bagg, who oversaw preparation of the survey, reported that respondents said they believed their need to borrow for the year’s first quarter would decrease.

Forty-two said they expected their capital expenditures to be higher in the first quarter of 1985 than in the previous quarter, compared to 36% who made the same statement in response to a Price Waterhouse survey three months ago.

One result of the study that Price Waterhouse officials say surprised them is that larger companies said they faced greater challenges from competing products and services than smaller companies.

“Smaller technology-oriented companies are in a period of innovation where competitive pressure is not as intense at the moment, because the market is changing in so many ways,” Bagg said.

Bagg said 53% of all the respondents reported sales increases over the previous quarter. But only 47% reported an increase in profits. “The difference shows that sales growth does not necessarily translate into a corresponding growth in profits,” Bagg said.