| | July 20208IN MY OPINIONhat does one need in times of a black swan event like Covid, a bit of courage to take bold steps for present resilience & future sus-tainability and some smart cor-porate finance policy framework to tide over crises like these. As we focus on immediate impacts of COVID-19, we need to keep an eye on the long-term repercussions of the new world order post this event.This is the second crisis of monstrous proportions on either side of the last decade. Not to forget another one at the beginning of the previous decade. This is all be-coming like a déjà vu occurrence every eight to ten years. And still we have learnt nothing from history. Compa-nies loaded their balance sheets with leverage to enhance the return to their equity shareholders, only to be look-ing at the governments now to bail them out. Vanity mergers & acquisition activities to spread wings into completely new sectors beyond the core competence of the corporations, without proper diligence. Arising QuestionsAs the cliché goes, history repeats itself and it is very much repeating itself again, as we speak. Many times, I ask myself, how can businesses and management not be prepared to withstand loss of revenue with existing cost structures for one to two quarters. Why do they need to tread on such thin ice, that any out of book event, put a question mark on the entire continuity of the busi-ness? Why are even big corporations looking for bailout with one quarter of suppressed or lost earnings? Why are businesses structured in a manner that allows such a weak financial resilience of shareholder value?Companies with more prudent capital structures with less gearing and sufficient reserves, will be able to ride of this crisis and the highly leveraged & unprepared ones will fade into history. Companies which have the sufficient cash to buy back their shares and avoid tak-ing dividends will do better during this period shall the requisite cushion to the gravity defying share prices and dwindling profits.Moreover, there will be massive loss of trust among businesses and equity markets with the frequent occur-rence of these crises. One cannot avoid a black swan event, but the frequency of these events and more so the impact of such events on the companies, points to a much bigger structural problem. This time around, should we not look to rewrite the general convention of corporate finance.Its these unprecedented times of extreme distress, that a new manuscript is written to prepare for the next pandem-ic or an economic crisis. Shouldn't companies, after the crisis, built their capital and corporate structure in WCOURAGE, COVID & CORPORATE FINANCEBy Amit Marwah, Chief Investment Officer, Dayim Holdings
< Page 7 | Page 9 >