Question

In: Finance

In this period of Coronavirus Pandemic how should we evaluate the corporate governance of a company?...

In this period of Coronavirus Pandemic how should we evaluate the corporate governance of a company? It is different from traditional evaluation?
What should the current ratio of a business be? Does the industry really matter? Why did you answer as you did?

We say that "the greater the risk, the greater the return should be." What do we mean? Does managing the risk change the required return?

Solutions

Expert Solution

At times of the coronavirus pandemic, the business valuation of the companies has to be done with certain assumptions because the risk exposures are higher and there is a high exposure to the macro factors as well, and these macro factors can never be easily discounted into the price because the systematic risk are highly volatile in nature and their predictability is very complex.

In the normal scenario, the growth rate are easily assigned by various organisation but in this scenario when the macro factors of the economy are very fluctuating in nature, the growth rate cannot be easily ascertained and the discounting rate is also not easy to calculate and the valuation has to be done a bit consciously and there has to be a high level of scepticism along with high rate of default.

Current ratio of a company should be higher as possible because when there is a higher total current asset than the current liability, so the current ratio should be higher as it reflect higher liquidity for the company.

When there is a greater risk, there would be a greater reward because those risk are highly threatening in order to eliminate the value of the capital if they do not occur then the value of the overall portfolio can be significantly maximized as well, and there is always a higher risk premium as the premium will reflect higher award.


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