The Impact of the COVID-19 Crisis on Value Assessment Cover Image

Uticaj COVID-19 krize na procjenu vrijednosti
The Impact of the COVID-19 Crisis on Value Assessment

Author(s): Tajana Serdar Raković
Subject(s): Economy, Business Economy / Management, Health and medicine and law, Financial Markets, Accounting - Business Administration
Published by: Finrar d.o.o Banja Luka
Keywords: valuation;COVID-19; discounted cash flow; discount rate; valuation methods; business operations;

Summary/Abstract: Valuation is faced with a double challenge, on the one hand, it is much more difficult to reach the relevant assessed value in hardly predictable conditions, and on the other hand, the COVID-19 crisis has additionally increased public pressure on valuation. The research question refers to the examination of the crisis impact on value and value assessment, which elements and valuation determinants need to be adjusted to the crisis conditions and how to make these adjustments. Researches conducted in Bosnia and Herzegovina show that the corporate sector has been hit hard by the COVID-19 crisis. It is obvious that the factors affecting the decline of business also leave consequences on the company value. Regardless of the impact of the crisis, the most commonly used valuation methods remain relevant: discounted cash flow methods and market valuation methods. Possibilities for solving the problem of lacking relevant inputs are normalization of multipliers, scenario methods and extrapolation of data from available prices of similar assets. Discount rates should be revised taking into account the decrease in risk-free rates, increased borrowing, market risk and company/industry specific premiums. In times of great uncertainty, it is certainly advisable to use as many valuation methods as possible in order to minimize the errors related each of them and to conduct a sensitivity analysis of key value determinants. Valuation, in terms of crisis, requires the broad view of all circumstances and factors, expert judgment, intuition and the professional skepticism of the appraiser.

  • Issue Year: 11/2020
  • Issue No: 3
  • Page Range: 27-43
  • Page Count: 17
  • Language: English, Serbian