COVID-19: Valuators Operating During Extreme Uncertainty
COVID-19 Mini Series
Davis Martindale’s Covid-19 Mini Series will provide some discussion on what valuators can do to adjust, and proceed with caution during this time.
Welcome to the first blog in Davis Martindale’s “Covid-19 Mini Series.”
“We are living in unusual times” has been the soundtrack to our lives over the past few weeks. Since March, Covid-19 has dominated conversation, news, radio, and our way of life. Everyone has been affected in some way, shape or form. Valuators are not excluded from this list! Along with our clients, we are, and will continue to be impacted by Covid-19. The economic landscape has shifted, as a result, many businesses simply are not worth today what they may have been during early 2020. Our Covid-19 Mini Series will provide some discussion on what valuators can do to adjust, and proceed with caution during this time of extreme uncertainty.
Before we consider the future impact of Covid-19 in our subsequent blogs, here is a very brief snapshot of the past. This timeline is important to understand, as value is a point in time measure. Here is a build-up to the current social distancing measures[1]:
December 31, 2019 – the World Health Organization (“WHO”) first reports cases of pneumonia-like illness in Wuhan, China.
January 7, 2020 – Chinese authorities confirm that they have identified the virus as a novel coronavirus.
January 11, 2020 – the first novel coronavirus death is reported in Wuhan, China.
January 21, 2020 – the first case is reported in the United States (“US”).
January 30, 2020 – US authorities report their first case of person-to person transmission, and the WHO determines that the novel coronavirus outbreak constitutes a Public Health Emergency of International Concern.
February 11, 2020 – WHO names the novel coronavirus Covid-19.
February 20, 2020 – global equity markets begin to show evidence of a 2020 stock market crash from the impact of Covid-19.
February 25, 2020 – lockdowns in Italy restrict the movement of around 100,000 people.
February 28, 2020 – S&P 500 Index records the fastest stock correction on record, falling more than 10%.
March 11, 2020 – WHO declares Covid-19 a pandemic.
March 11, 2020 – NBA suspended season play.
March 13, 2020 – State of Emergency declared in the US.
March 17, 2020 – State of Emergency declared in Ontario[2].
March 2020 – Dow Jones Industrial Average experiences its largest point plunge on March 9, with two more record-setting drops to follow on March 12 and 16[3].
The second blog in our “Covid-19 Mini Series”, “Covid-19: Known or Knowable?” will be published later this week. It will discuss valuators’ approaches to assessing and disclosing assumptions about what was known or knowable at various dates, prior to and during the Covid-19 pandemic. The timeline of events discussed above, will be a useful reference in our subsequent blogs. Just like the value of your home, the value of a business is assessed at a single point in time, and as Covid-19 has reminded us, value can change quickly and in some cases dramatically.
Blog topics coming soon in the Covid-19 Mini Series:
- Report subsequent event disclosures and/or scope restrictions;
- Valuation approach considerations including the use of management forecasts, working capital requirements, multiple scenarios, and varying discount rates;
- Forecasting under various economic recoveries – “the V, W, L, U, etc.”;
- Income for support considerations; and
- Valuation lessons from past economic events.
Check out our Hindsight: Part 1 and Part 2 blogs for a refresher on this topic.
If you would like a further discussion on any of the topics covered in our mini series, please do not hesitate to call our team.
Co-Authors
Louise Poole
CPA, CA, CBV, CFF
Partner
Valuation & Litigation
Ron Martindale
BASc, CPA, CA, LPA, CBV, CFF
Partner
Valuation & Litigation
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