Valuation, Economics and Modeling

Global impact

It is uncertain for how long the COVID-19 pandemic will influence the business environment. With governments all around the world putting in place measure to contain the health crisis, companies across a wider range of sectors will be confronted with severe disruptions, such as the reductions in demand and supply and the issue of quarantined workforce, and liquidity shortage.  

Challenges

• Disruption

While some companies may be better equipped that others to mitigate the impact of COVID-19 and to respond to this event, it is a fact that many are also scrambling and that the echoes of the pandemic are creating the ideal environment for a disruption, fueling the need of cash availability in order to protect core business operations.

• Liquidity shortage

The increased volatility across the global financial market will definitely influence the way companies from various industries will carry out their activity. They will have to shape short-term plans according to the new normal and to drive liquidity/cost-out initiative.

How can we help?

• Liquidity management

- Reforecast short-term (13 weeks) operating cash flows;

- Working capital planning;

Straining businesses’ cash and working capital is one of the effects of the collapsing demand and the supply chain shutdowns. Companies are encouraged to seek to improve cash flow by optimizing working capital and identifying “quick-win” self-help measures for optimal results.

Levers to release pressure from working capital:

- Receivables;

- Inventory;

- Payables.  

- Analysis of the borrowing capacity;

- Valuation of assets.

• Scenario-based forecasting

- Prepare alternative budgets;

- Monitor key indicators and perform stress tests;

- Reforecast, reforecast, and reforecast again.

• Financial reporting

- Goodwill impairment:

Due to the unprecedented business disruption and capital markets declines brought on by macro triggering events such as COVID-19, clients are asking advisors for perspectives around impairment testing such as market price decline and impacts to business and supply chains etc. As such, a greater level of uncertainty exists as it pertains to trigger-based impairment considerations.