Description
The COVID-19 virus has had a profound effect on the world economy. One important consideration of the pandemic is its impact on a company’s enterprise value. As a result of the coronavirus pandemic, a new financial metric for measuring profitability has emerged – EBITDAC (Earnings Before Interest, Taxes, Depreciation, Amortization, and Coronavirus).
As the coronavirus pandemic spread, the profitability of many organizations was directly or indirectly impacted. Many businesses were forced to close or shelter-in-place. Other entities found it difficult to source material and in turn were unable to fulfill customer orders. Still other companies were unable to pivot to a remote workforce and suffered a decline in revenues. The addition of the ‘C’ to the traditional EBITDA metric is meant to quantify a company’s losses attributed to the coronavirus pandemic. Examples of potential “coronavirus” adjustments include:
- Lost revenues and profits.
- Disruptions to workforce (including employee severance or “combat pay” bonuses.
- Lease termination costs.
- Disruptions to supply chain (cost increases, expedited freight, etc.).
- Declines in efficiency due to remote work environment.
This session will evaluate the purpose and use of the EBITDA measurement and the addition of the “C” component due to the coronavirus. We will examine what considerations organization may make when using this metric for merger and acquisition activity or simply management strategy forecasting.
