Projections have always attracted scrutiny, but the pandemic has intensified this attention. Here’s a question you are likely to get that seems innocuous enough but could invite trouble, especially if asked in a deposition or on the witness stand: “Are the projections in your valuation analysis less reliable now than they were before the pandemic?”
Be careful: Many people would think the answer is naturally “yes” because of today’s unprecedented and highly uncertain times. But that answer could explode into a barrage of follow-up questions designed to attack the reliability of your entire report. Therefore, the answer should be this: “The projections are more difficult to do now, but they are just as reliable as before.” Valuation analysts strive to make sure projections are as reliable as possible regardless of the environment or nature of the economy. The problem now is not different from, for example, valuing early-stage companies whose future performance is not predictable. During volatile times, the analyst will spend more time gathering and analyzing company- and industry-specific data, so the projections should be equally as reliable as before the pandemic.
This was one of the many interesting points covered during a session at the AAML/BVR Virtual Divorce Conference, which continues tomorrow, September 17, with a session titled Creative Settlements When Working With Distressed Businesses and Catastrophic Losses. Sessions are conducted by attorneys, valuation professionals, and industry experts, and special sessions are devoted to online one-on-one speed networking.
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