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WHAT DO INVESTORS WANT TO KNOW?
As CPAs prepare financial statements and corporate reports in coming quarters amid ongoing uncertainty, investors are also thinking about the effects of the pandemic on balance sheets in the long term.
Executives may be busy fighting fires in liquidity, cash management, valuation and other areas, but boards will need to also ask them to prepare for a strategy discussion on the “next normal”, according to McKinsey.
Investors are now scrutinizing managers’ plans for economic recovery and for pivoting to new opportunities. Audits are referencing the effects of Covid-19 in warnings about whether a business is likely to remain a going concern.
In a bull market, investors focus on income statements. But in a bear market, they want to see balance sheets. CFOs on the panel confirmed that there had been increased investor scrutiny of balance sheets during the crisis. One noted that this was a broad sweep, with investors and analysts simply screening companies with a certain level of capitalization and then digging deeper.
However, one CFO explained, there is now huge uncertainty about valuations, which are being based on guidance for 2021. Companies have written off much of 2020 and suspended guidance, sometimes for the full year. People inside and outside of organizations are attempting, and sometimes struggling, to get the best possible understanding of where businesses’ fortunes are headed.
Gaining that understanding is a particular challenge because it is hard for CFOs to discern how much of what is happening in their business is unique to them, an issue with their industry or the economy at large, or even more specific to Covid itself. A real-estate industry CFO said his business had enhanced internal reporting on rent collections, organized by region and asset class, to stay on top of issues. At the same time, cashflow forecasts a full two years ahead were now based on assumptions about the impact of the Covid-19 response. The firm is engaging in scenario planning and developing mitigation strategies for the worst cases.