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Why has it been so difficult to value companies during the coronavirus pandemic?

Why has it been so difficult to value companies during the coronavirus pandemic?

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Expert Solution

It is difficult to value companies during coronavirus pandemic because-

A. it is very difficult to estimate the growth rate during such a volatile time for various companies and industries

B. it is also very difficult to estimate the cash flows which are accruing to the firm in this time because there is no specific pattern.

C. There is a lot of volatility increasing in the macro environment and there is a high amount of uncertainty also existing amount in the macro environment so it is not easy to value the risk.

D. There is a high amount of solvency risk associated with various companies because of risk of increasing debt default so it is not easy to value various companies in this coronavirus pandemic

E. There is a very high amount of liquidity risk due to decrease of liquidity in the entire market and it is leading to a liquidity freeze so various problems are there in regarding valuation of various companies

F. There is a high amount of micro risk also associated due to shrinking of demand and there is a high level of risk for an impending recession so it is not easy to value the company in such economic situation.

So, these are the problems due to which it is not easy to value a companycompany during the coronavirus pandemic.

jeff jeffy answered 2 years ago
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