Theory and method of enterprise value evaluation

Theory and method of enterprise value evaluation

Enterprise value evaluation refers to the behavior and process that a certified asset appraiser analyzes, estimates, gives professional opinions and writes a report on the overall value of the enterprise and the value of all shareholders' equity or part of shareholders' equity under a specific purpose on the evaluation benchmark date. This paper mainly studies the theory and method of enterprise value evaluation, and welcomes everyone to read for reference.

With the deepening of China's reform and opening-up, the development of property rights market and capital market, and the theory and method of perfecting enterprise value, it has also been widely used in enterprise restructuring, enterprise merger, venture capital, capital market, financing and enterprise management. This paper briefly expounds the theoretical origin and development of enterprise value evaluation, compares and analyzes the applicability and characteristics of existing technical methods, and puts forward the future development trend of enterprise value evaluation methods in practical application fields.

Paper Keywords: enterprise value evaluation theory and methods

Facing the trend of economic globalization and fierce market competition, to? Maximize enterprise value? Running enterprises for strategic goals has been widely popular, and it is recognized as the same language of enterprises in 2 1 century. With the deepening of China's reform and opening up and the rise of property rights market and capital market, the theory and method of enterprise value have also been widely used in the fields of enterprise reorganization, enterprise merger and acquisition, venture capital, capital market financing, enterprise management and so on.

First, the origin and development of enterprise value theory

Enterprise value refers to the exchange value of an enterprise as a specific asset complex under real market conditions, which is determined by the profitability of the enterprise and the sum of the profitability value and potential profit opportunity value of the enterprise on the existing basis.

The study of enterprise value theory first appeared abroad. 1930, Fisher published the book Interest Theory, which marked the formation of the theory of capital value. In this book, he pointed out that under certain circumstances, the value of an investment project is the present value of the expected cash flow generated by the project in the future after being discounted at a certain risk interest rate, which laid the foundation for the enterprise value theory.

1963, modigliani and Miller put forward MM theory, studied the relationship between enterprise value and its capital structure, discussed the applicability of this theory, and established an enterprise valuation model with enterprise income tax, which laid a solid foundation for modern enterprise valuation theory.

Since 1950s, modern portfolio theory and capital market theory have made great progress due to the deepening of economists' understanding of discount rate. Among them, the famous Capital Asset Pricing Theory (CAPM) reveals the corresponding relationship between risk and return, which clears the way for people to estimate the capitalization rate of enterprises more accurately. Therefore, the discounted cash flow method has become the mainstream method of enterprise value evaluation.

1974, in order to make up for the deficiency of the discounted cash flow method, meyers of MIT proposed the adjusted present value method (APV). Compared with the discounted cash flow method, the adjusted present value method is an improvement, which improves the accuracy of value evaluation, but the operation process is too complicated and meets great difficulties in practical application.

1977 Professor Myers of Massachusetts Institute of Technology pointed out that when the investment object is a highly uncertain project, the traditional net present value theory underestimates the actual investment. Myers believes that the physical resource investment under high uncertainty still has the characteristics similar to financial options, which makes the financial option pricing technology can be applied to the field of physical asset investment, and the option pricing theory provides a new idea for enterprise value evaluation.

In 199 1, Scott put forward the concept of economic added value. Economic added value refers to the difference between the company's capital gains and capital costs. Based on the business goal of maximizing the interests of shareholders, this method has become one of the basic value analysis tools of some large investment banks in Europe and America. However, its application and development are limited because it has not formed a set of perfect theoretical system and operation methods.

The theoretical research on value evaluation appeared late in China, mainly in the late 1990s, but most of them were translated works, and most of them borrowed from the evaluation theories of western countries. At the same time, some scholars have studied the specific situation of our country on the basis of drawing lessons from western theories.

Second, the basic methods and characteristics of enterprise value evaluation

The purpose of enterprise value evaluation is to analyze and measure the fair market value of enterprises, so as to help investors and managers improve their decision-making. The basic methods of enterprise value evaluation mainly include cost method, market method and income method. Each method has its own adaptability, advantages and disadvantages, and it is mainly selected according to the actual situation of the enterprise to achieve the purpose of value evaluation.

1. cost method

Cost method refers to the method of calculating the overall value of an enterprise by adding up the estimated values of various essential assets that constitute the enterprise according to the replacement cost method. Enterprise value evaluation adopts cost additive process, that is, the sum of the evaluation values after deducting various depreciation factors from the replacement cost of all assets of the enterprise. Specifically, it refers to the method of adding the evaluation values calculated by the replacement cost method to calculate the overall value of the enterprise.

The cost method is based on the balance sheet, and its evaluation results have strong objective basis. Generally speaking, the cost method is applicable when it involves holding companies that only invest or own real estate, and the evaluation premise of the evaluated enterprise is non-sustainable operation. However, it is difficult to grasp the integrity of the value of a going concern enterprise by using the cost method, and it is also difficult to measure the process matching between the possible integration effect or synergy effect of a single asset and an organic combination factor. Under the assumption of going concern, it is not appropriate to use the cost method alone to evaluate the value.

2. Income method

Income method, also known as income present value method, refers to an evaluation method that estimates the expected future income of the evaluated enterprise and converts it into present value, so as to determine the value of the evaluated assets.

Income method is based on expected income and discount rate. For the target enterprise, if the current income is positive and sustainable, and the discount rate during the income period can be reliably estimated, it is more suitable to use the income method to evaluate the value. The income method is not applicable to enterprises in trouble, enterprises with periodic returns, and private enterprises with unstable operating conditions that are difficult to reasonably measure risks.

3. Market rules

Market method refers to an evaluation method that takes the transactions of the same or similar enterprises in the property right market and the transaction price of the market as a reference, makes necessary difference adjustment and corrects the transaction price of the market, so as to determine the value of the evaluated enterprise. Market method mainly includes two evaluation methods: correlation ratio method, stock and bond value method.

The biggest advantage of market method lies in its simplicity, intuition and flexible application. Especially in the case that it is difficult to make a detailed forecast of the future income of the target company, it is obviously limited to use the income method to evaluate, and the market rules are relatively limited. There are also some limitations in evaluating enterprise value by market method: first, the risks and uncertainties faced by the evaluation object and the reference enterprise are often different, so it is difficult to find a comparable enterprise that is absolutely the same or similar to the evaluation object; Secondly, the adjustment of value ratio is a crucial step in the application of market method, which requires appraisers to have rich practical experience and strong technical ability.

Third, the practical application and development trend of enterprise value evaluation methods

According to statistics, from 2008 to 20 10, the proportion of using multiple evaluation methods in the enterprise value evaluation of major reorganization of listed companies in China increased year by year, and the proportion of using two methods at the same time increased from 63% in 2008 to 8 1% in 20 10. The average proportion of the final evaluation results of major restructuring of listed companies in three years using the cost method is 48%. 20 10 income method accounts for 52%, and cost method accounts for 4 1%. The proportion of income method exceeds that of cost method for the first time.

1. Income method is widely used.

Income method has advantages in comprehensively reflecting enterprise value. It can usually comprehensively consider all the tangible and intangible factors that affect the enterprise value, and get a relatively comprehensive reflection of the enterprise value. Income method is to evaluate the value of assets from the perspective of future income, which conforms to the psychological expectations of stakeholders and is easily accepted by regulatory authorities and investors. In recent years, with the gradual accumulation of information in China's capital market, the technical means of income method application have been gradually improved, and the conditions for its wide application have been relatively perfect.

2. Market method has broad application prospects.

Due to the short development history of China's capital market, the external conditions for the application of market method are not mature enough, and the application ratio in the overall value evaluation of enterprises is still low. However, in the overall valuation of enterprises, market method has always been a commonly used valuation method in the world. With the continuous improvement of China's capital market and other property rights markets, the increase of market-oriented transactions and the standardized development of information disclosure, the application conditions of market rules in China will gradually mature, and the application of market rules will be greatly improved with the continuous technical accumulation and practical exploration of professional institutions.

3. The cost method still has advantages.

The cost method is easier to verify in parameter selection and method application, and has stronger recheckability. Intangible or hidden factors such as traditional manufacturing, electric power and military industry have little influence on its enterprise value, and its profitability is basically equivalent to the industry average or its operation is greatly influenced by national policies. For enterprises, the cost method still has certain advantages. With the mature application of income method and market method, the position of cost method in the application of enterprise value evaluation will gradually fade, and the scope of application will also shrink.

We believe that with the continuous improvement of China's capital market and the continuous development of valuation technology, the choice of enterprise valuation methods will surely move towards a more mature and rational stage.

References (omitted)

;