The challenging environment means that forecasting future growth and returns is particularly problematic. The domino effect of this uncertainty is a much more complex process for estimating the impact on the cost of capital.
Textbook principles and processes are being stretched – given the uncertain prospects in most sectors, it is more difficult than ever to prepare financial forecasts.
Our survey provides a unique reference point for corporate financiers, infrastructure funds and consultants performing valuations in the Australian market.
- Cash is still king – The discounted cash flow approach is the dominant methodology used by Australian financial analysts and corporate financiers. This may reflect the more flexible nature of this approach, which enables multiple scenarios around growth expectations to be considered, providing a far more insightful valuation result.
- Lack of reaction to volatility – 68 percent of participants indicated that they do not revise their equity market risk premium assumptions to reflect the recent developments in capital markets.
- Advisers take note of accounting standards – 21 percent of the participants critically evaluate and 74 percent consider the impact of accounting standards on future financial statements when advising on a deal.