Discount rates down, impairment in focus
December 2019 discount rate update – our latest article on how to assess your discount rates identified that:
- Impairment testing and asset values continue to be one of the key focus areas for ASIC in relation to the 31 December 2019 reporting period, with many businesses applying more rigour in their assessment of discount rates.
- The cost of capital has declined over the period due to a reduction in the equity market risk premium (EMRP) and credit spreads. All other things being equal, this will lead to higher asset values.
- It’s increasingly important for businesses to understand and be able to justify changes that are occurring in their projected cash flows and WACC as well as ensuring cross-checks to market metrics (such as market capitalisation and EBIT multiples) are undertaken where observable.
If you would like to discuss discount rates, impairment, or any other valuation related matter, please feel free to contact us.