Date posted: 2/12/2019 4 min read

View from the Chair: Update from Manda Trautwein

The Reserve Bank has recommended businesses review their hurdle rates, potentially impacting valuations.

In brief

  • The Reserve Bank has suggested hurdle rates be revised, potentially impacting investment decisions
  • Professor Aswath Damodaran has been confirmed as keynote for BV Conference
  • Please note change to conference date – now 19-21 October 2020

This quarter has been marked by discussions around hurdle rates, following the Reserve Bank of Australia’s suggestion that companies review how they’re setting their rates. This was followed by an announcement from ANZ Chief Executive Shayne Elliot that the bank may be moving their hurdle rates as a response to falling costs of capital. 

Many notable businesses have already taken the lead. Wesfarmers, Dexus and Woodside have all indicated that they are assessing long-term projects with a view to shifting hurdle rates – per Treasurer Frydenberg’s recommendation that companies prioritise investing capital into their business over returning dividends to shareholders.  

As business valuation specialists, we have been debating this issue for some time.  What is the best approach for dealing with our record low interest rate environment? The majority of practitioners appear to be using either an adjusted or normalised spot rate as their risk free rate or they are reassessing their market risk premium when calculating their cost of equity.   This practice may be clarified in the results of KPMG’s 2019 Valuation Practice Survey which will be available on CA ANZ's website by the end of December 2019.

“Business relies on hurdle rates as a key metric to decide whether to invest in a project.”

Speaking of hurdles   – and overcoming them – I am very pleased to advise that we have now confirmed Professor Aswath Damodaran from Stern University, New York, as our keynote speaker for the 2020 Business Valuation and Forensic Accounting Conference.  We have been speaking with Professor Damodaran for several years now about coming to Australia and we are beyond excited that he will finally be joining us next year. 

Professor Damodaran will open our conference with a keynote address and present at a dinner for our Business Valuation Specialists. He will also run a full day of workshops, based around the seven valuation lessons he has learned over the years, whilst revisiting some of the fundamentals of valuations. More information about Professor Damodaran’s work is provided in the detailed profile in this newsletter. 

Finally, but crucially, please be aware that the dates for 2020 Business Valuation and Forensic Accounting Conference have changed – and will now take place on Monday 19 to Wednesday 21 October next year.

2020 Business Valuation and Forensic Accounting Conference

Make sure you Register Your Interest below to secure your place.

Register here