How to account for COVID-19 in a valuation?
How would you account for the effect of COVID-19 in each of the 3 valuations methods? (DCF, Comparables, Precedent Transactions)
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Industry standard ebitdac is 10% add-back
That is a really open-ended question. Covid isn't something that affects every company the same way. Some have benefited from it, others have been hurt, etc.
It isn't an input that you can just plug in. As everything, you need to adjust assumptions as you see fit by looking at research reports, recent transactions within the same sector, among others. Covid is a big unknown... so it's even harder to predict what will happen in the coming weeks or months.
Thank you, Paul! Assuming that the company was negatively hit (ie. an airline company). What would be your approach?
You usually would just create an adjusted ebitda. For example, say a company usually grows at 5% and ebitda was $100m in 2019 but it dropped to $50m in 2020 cause of Covid. You’d adjust ebitda to 105 in 2020
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