Key considerations and approaches for adjusting forecasts and scenarios. The Covid-19 pandemic reminds us of the difficulties inherent in factoring the impact of a crisis into asset valuation exercises. The value of an asset is closely linked to its ability and probability of generating future gains. However, in times of crisis, the future appears much more uncertain and the field of possibilities is therefore much wider. Similarly, common value approaches present their own set of difficulties.
Despite the crisis, not all valuations can be postponed until we have clarity around the end of the crisis. In fact, some of valuation exercises can have major knock-on effects.
In this report, we start by looking at the main principles to be observed, depending on the context of the valuation, and the very first actions and checks to perform. We then focus on detailed analysis of the market-based methods, notably multiple approaches. In doing so, the study will connect these methods with income approaches and will highlight a number of risks and pitfalls when implementing valuation processes in the context of a crisis.
Finally, throughout the study, a general approach will emerge aimed at interpreting market developments in the form of a configurable model of the effects of the crisis. This configurable model should increase understanding of the impairments of financial markets in times of crisis, while helping a business and its team learn if the model is a suitable course of action for them.
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