THE EFFECTS OF THE COVID-19 PANDEMIC ON FREE CASH FLOW, DEBT-TO-EQUITY RATIO, AND EARNINGS PER SHARE FOR LISTED COMPANIES ON THE DOW INDUSTRIAL AVERAGE

Morsheda Hassan
Grambling State University

Raja Nassar
Louisisa Tech University

Aaron Witherspoon, Retired
Grambling State University

In this study, the authors investigate the Covid-19 effects, using time-series intervention
analysis, on the free cash flow (FCF), debt-to-equity ratio (DER), and earnings per share (EPS) of
28 companies listed on the Dow Jones Industrial Average. Results showed that 36% of the
companies had a significant reduction in free cash flow due to the pandemic, and 7% had a
significant increase in free cash flow. On the other hand, the pandemic did not affect free cash
flow in 57% of the companies.
For DER, the majority of the companies (64%) were not affected by the pandemic. There
was a significant increase in the DER under the pandemic in 11% of the companies. On the other
hand, 25% of the companies showed a significant decrease in the DER. Results for the EPS
showed a significant decrease in EPS in 29% of the companies and a significant increase in 25%.
The pandemic did not affect EPS in 46% of the companies. All three financial ratios were affected
by the pandemic. However, free cash flow was most affected. The significant negative effect could
have reduced profitability and the stock price.
Keywords: COVID-19, free cash flow, debt-to-equity ratio, earnings per share, DowJones