How to evaluate enterprise value

At present, there are four methods of enterprise value evaluation: asset value evaluation method, cash flow discount method, market comparison method and option value evaluation method. \x0d\ \x0d\ 1。 Asset Value Appraisal Method \ x0d \ x0d \ Asset Value Appraisal Method is a static appraisal method which uses the existing financial statement records of an enterprise to evaluate the assets of the enterprise separately and then add them together, mainly including book value method and replacement cost method. \x0d\x0d\ 1, book value method \ x0d \ book value refers to the value or net value of shareholders' equity in the balance sheet, which is mainly composed of the capital invested by investors plus the operating profit of the enterprise. The calculation formula is: target enterprise value = target company's book net assets. But this is only a measure of the stock assets of enterprises, and it cannot reflect the profitability, growth ability and industry characteristics of enterprises. In order to make up for this defect, in practice, the adjustment coefficient is often used to adjust the book value, which becomes: target enterprise value = target company's book net assets ×( 1+ adjustment coefficient). \x0d\ \x0d\ 2。 The replacement cost method \x0d\ replacement cost refers to the cost of acquiring the enterprise itself and rebuilding an enterprise exactly the same as the target enterprise. Of course, we must take into account the depreciation of existing enterprise equipment. The calculation formula is: target enterprise value = brand-new price of enterprise assets in the current market-tangible depreciation-intangible depreciation. \ x0d \ x0d \ The above two methods are based on the historical cost of the enterprise to evaluate the enterprise value. The most important feature is that they adopt the idea of dividing the stock prices of enterprise assets and then adding them up, and the actual operation is simple. Its most fatal shortcoming lies in splitting an enterprise organism: an enterprise is not a simple accumulation of various means of production such as land and production equipment, but its value should be the embodiment of its overall quality. If an asset is evaluated separately from the whole, its cost price will be far from the marginal income it brings to the whole. The book value of an enterprise's assets has little to do with its ability to create future earnings. Therefore, the evaluation result is not actually the enterprise value in the strict sense, but can only be used as a value reference at best, providing the bottom line for evaluating the value. \ x0d \ x0d \ II。 Cash flow discount method \ x0d \ x0d \ Cash flow discount method, also known as Rabat model method, is a method to convert cash flows at different times into present values and add them to obtain the value of the target enterprise under the consideration of the time value and risk of funds. \ x0d \ x0d \ III。 Market comparison method \ x0d \ x0d \ The theoretical basis of market comparison method is that similar assets should have similar prices, and its theoretical basis is "substitution principle". The essence of market method is to find out one or several reference enterprises that are the same as or similar to the evaluated enterprise in the market, and on the basis of analyzing and comparing their important indicators, correct and adjust the market value of the enterprise, and finally determine the value of the evaluated enterprise. The focus of market method evaluation is to select comparable enterprises and determine comparable indicators. \x0d\ \x0d\ First of all, when selecting comparable enterprises, we usually rely on two criteria: one is the industry standard and the other is the financial standard. Secondly, when determining the comparable index of enterprise value, we should follow a principle, that is, the comparable index is directly related to the enterprise value. Usually choose three financial indicators: EBIDT (interest, depreciation and pre-tax profit), debt-free net cash flow and sales revenue. Among them, cash flow and profit are the most important indicators, because they directly reflect the profitability of enterprises and are directly related to the value of enterprises. \x0d\ \x0d\ Market comparison method evaluates the value of the target enterprise by pricing similar or comparable assets with reference to the market. Because it needs the market value of the enterprise as a reference, the market comparison method relies more on efficiency than discounted cash flow method. But suppose, that is, "the market as a whole will fail in the target enterprise law." The market of real differences and trading cases is not perfect, and their use is limited to some extent. \x0d\ \x0d\ IV。 Option valuation method \ x0d \ x0d \ Only when the option is bought at a given date or at a fixed price or the value of the underlying asset is oversold can the Scholes model be closed. Under the \ x0d \ x0d \ option value evaluation method, the option value implied in M&A can be determined by the option pricing model, and then added to the static net present value calculated by the traditional method, which is the value of the target enterprise. Option valuation method considers the value and business flexibility of various opportunities of the target enterprise, makes up for the defects of traditional valuation method, and enables the acquirer to choose opportunities and create business flexibility according to risks. The greater the risk, the higher the opportunity value and flexibility of the enterprise. However, there are still some problems to be solved in the research, such as the assumption of option pricing model has not been strictly tested in use. In fact, whether the opportunity benefits of many economic activities conform to the laws of geometric or logarithmic Brownian motion remains to be studied. In practice, this method is rarely used alone to get the final result, but it is often adjusted to get the evaluation value on the basis of pricing by other methods and considering the value of M&A options.