I have been building a DCF model in my spare time for some time now and it had not occurred to me that it would be appropriate to have a scenario where a serious 'shock' to the system occurs, until recently. Obviously COVID-19 is going to create a shock to the revenues of certain sectors as people are forced to limit their discretionary spending. Of course this is all based on assumptions, but i cannot come up with an assumption for what/how revenue returns to 'normal' the year following the shock. Any thoughts/suggestions are appreciated.
worth noting i don't work in IB/ER/AM/VC/PE therefore i don't do this on a daily basis, so i apologize if this intuitive for some
Currently doing a lot of COVID-adjusted models for clients - scenario analysis obviously varies across clients and subsector, but two scenarios that are more prevalent:
Thanks for your insight, it is appreciated. If you don't mind me asking, in the event of a v-shaped recovery to the top line, how would you recommend going about estimating the growth the following year? My assumption is that if, for example, revenues are 150k in 2019, but they experience a 'shock' and decline 20% to 120k for 2020, they would then recover to a value closer to 150k in 2021. What i am having a hard time quantifying is the assumptive growth rate in the second half of the V. I feel as if it should, in part, be based upon the preceding decline in the top line. Any thoughts or suggestions? Thanks again.
I think it's reasonable to model if after the preceding decline - that would get you to a number close to the 2019 revenues without actually quite reaching there (i.e. Multiplying x by 0.8 and then 1.2 gives you 0.96x).
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