Investing today is more complicated than at any other time in living memory. The Pandemic has affected every sector of the economy and is creating huge numbers of winners and losers.
We Are Not Returning to Normal
Pandemic Impact Research attempts to translate our belief that we are not returning to “normal” and that a “new normal” will exist creating opportunities for some companies, and challenges and failure for others.
7 Pandemic Factors Analyzed - 30 Specific Indications
Financial & Leverage
Cash Flow Stress Tests
We’ve developed 7 factors and 30 specific indications we believe measure whether a company is being impacted by the Covid-19 pandemic currently and in some cases permanently. We also review and score a series of financial ratios and stress tests designed to provide a snapshot of a company’s financial health and ability to survive a prolonged period of reduced growth, and/or finance growth or restructuring to take advantage of new opportunities.
Pandemic Impact Factors
We objectively score businesses based on positive and negative factors and how significantly they may be affected by each applicable factor. Our model generates a total regression score by generating a coefficient of the risk and reward scores given to the company by an experienced analyst.
We generate a Total Regression Score, a Covid-19 Risk Rate and a Covid-19 Benefit Rate designed to identify companies who are most at risk or have the most to gain in a Pandemic affected economy.
Financial Stress Test Analysis
NXTanalytic completes a financial analysis of each company using data taken from the most recently audited financial statements. Our goal is to provide a snapshot of a company’s financial condition and ability to survive a prolonged period of reduced growth, and/or finance growth or restructuring to take advantage of new opportunities.
Cash Flows are Critical
We believe that cash flow is a critical metric in the near and medium term. As a result companies without sufficient cash flow to service debt properly are at greater risk or are unable to take advantage of emerging growth opportunities.
Leverage Ratios as a Focus of Stress
Debt ratios are classic balance sheet health measuring tools used to indicate potential risks to future financing ability (ie. violating debt covenants) or as a barometer of the defensive position of the company if cash flows are ever an issue. Our view is that companies with less debt are more likely to be able to withstand challenges or fund opportunities created by the pandemic.
Cash Flow Stress Test Analysis
NXTanalytic completes a simple cash flow stress test by reducing Cash Flow From Operations by three levels: a 10%, 20% and 30% reduction. We then rate the EV/FCF ratio. We use the EV/FCF ratio to assess the total valuation of the company in relation to its ability to generate cash flows as a measure of a company’s ability to service its debts from cash flow.