Preparing for Difficult Times Soon after the pandemic was declared in mid-March 2020, companies faced significant uncertainty. Record unemployment, crippled supply chains, and declining revenues were being felt across most sectors of the U.S. economy. Would companies be able to adapt their operations quickly enough to survive what had become a new normal in the business world? Having experienced the devastating effects of the previous global financial crisis in 2008-09, executives knew that cash would be crucial for their companies to survive this crisis, so they took immediate steps to build-up corporate cash reserves. The following table reports the increases in cash at both Domino's Pizza and Koss Corporation between the start of the pandemic in March and just three months later? (in millions) Domino's Pizza Koss Corporation March 2020 $ 200.8 2.1 June 2020 S 248.0 3.9 Increase 24% 86% Domino's Pizza and Koss weren't the only companies stockpiling cash. A study of the largest nonfinancial businesses in the U.S. concluded that the top 400 companies had increased their cash balances by 38.5% over the first six months of 2020.2 In an even broader sample, the U.S. Federal Reserve observed that the total amount of "checkable deposits and currency" of nonfinancial corporations at the end of June 2020 was 25% greater than the balance at March 31, 2020.3 What was producing the increase in cash? One cause of the larger cash balances was that companies were borrowing more. The study done by the U.S. Federal Reserve found that total corporate debt as a percent of stockholders' equity was up 13% between March 31 and June 30, 2020.3 Another factor leading to the increase in cash is that companies limited spending by cutting travel, suspending dividends, and postponing payments on loan and rental agreements. They also were laying-off employees. To discourage layoffs, the U.S. government provided an alternative source of cash through the Paycheck Protection Program (PPP), which aimed to give forgivable loans to small businesses struggling to pay employees during the pandemic. That's where Koss tapped into $500,000, contributing to its cash increase between March and June 2020. Sadly, the PPP was not able to help all U.S. businesses gain sufficient cash to survive the pandemic. According to the American Bankruptcy Institute, more than 7100 companies filed for Chapter 11 bankruptcy protection in 2020, representing an increase of 29 percent over 2019.4 1 All amounts for Domino's Pizza and Koss Corporation are obtained from SEC filings Form 10-K and Form 10-Qs filed at sec.gov. 2 Calcbench. (2020, December 9). As coronavirus lingers, a cash grab [Blog post). Retrieved from https://www.calcbench.com/blog/post/637040982782820352/as-coronavirus-lingers- a-cash-grab. 3 Board of Governors of the Federal Reserve System (US). Nonfinancial Corporate Business, Checkable Deposits and Currency, Asset, Level [NCBCDCA), retrieved from FRED, Federal Reserve Bank of St. Louls: Retrieved from https://fred.stioulsfed.org/series/NCBCDCA. American Bankruptcy Institute. (2021, January 6). Total bankruptcy filings drop 30 percent in calendar year 2020, Commercial Chapter 11s up 29 percent [Press release]. Retrieved from https://www.abl.orgewsroom/press-releases/total-bankruptcyfilings-drop-30-percent-in-calendar-year-2020-commercial. 4 Koss Corporation reported the following amounts in its quarterly financial statements. Use this information to answer questions a and b below. (in thousands) Net Sales Net Income (Loss) December 31, 2019 $ 4,123 (215) March 31, 2020 $ 4,789 (97) June 30, 2020 $ 3, 948 158 September 30, 2020 $ 5,208 127 a. Calculate the net profit margin ratios (expressed as percentages, rounded to one decimal place) for the quarterly periods ended December 31, 2019 and March 31, 2020. December 31, 2019 Net Profit Margin Ratio March 31, 2020 Net Profit Margin Ratio The net profit margin ratios above indicate Koss profitable, b. Calculate the net profit margin ratios (expressed as percentages, rounded to one decimal place) for the quarterly periods ended June 30 and September 30, 2020. = June 30, 2020 Net Profit Margin Ratio September 30, 2020 Net Profit Margin Ratio =