Port communicationA detailed introduction to the income approach to business valuation、Cost method and market method! The most important thing in investing is valuation。Reasonable assessment of the value of the target enterprise is one of the very important issues often encountered in the process of corporate mergers and acquisitions and foreign investment.。Appropriate assessment methods are the prerequisite for accurate assessment of corporate value.。This article will focus on the core methods of corporate value assessment，From the basic principles of the method、Analyze and summarize the scope of application and limitations.。
1、Three major systems of enterprise value assessment methods Enterprise value assessment is a comprehensive asset、Equity assessment is the overall value of the enterprise for a specific purpose、Analyze the value of all or part of shareholders’ equity、The process of estimating。Currently, the internationally accepted valuation methods are mainly divided into income method.、Three categories: cost method and market method。The income method determines the value of the appraisal object by capitalizing or discounting the expected income of the enterprise being appraised to a specific date.。
Its theoretical basis is the discount theory in economic principles，That is, the value of an asset is the present value of the future income that can be obtained by using it.，The discount rate reflects the return on risk of investing in the asset and earning a return。The main methods of income approach include discounted cash flow method (DCF)、Internal Rate of Return (IRR)、CAPM model and EVA valuation method, etc.。
The cost method is based on the balance sheet of the target company，Determine the value of the valuation object by reasonably evaluating the value of the company's assets and liabilities.。The theoretical basis is that any rational person will not pay a higher price for an asset than the price of replacing it or purchasing a substitute for the same purpose.。The main method is the replacement cost (sum of costs) method。
The market method is to compare the evaluation object with reference companies or companies with existing transaction cases in the market.、Shareholders' equity、Compare securities and other equity assets to determine the value of the appraisal object。The premise of its application is to assume that similar assets in a complete market will have similar prices.。A commonly used method in the market approach is the reference enterprise comparison method.、M&A Case Comparison Method and Price-Earning Ratio Method。
2、Enterprise value evaluation and new methods (1) Discounted cash flow method (DCF) that focuses on the time value of money. The cash flow created by enterprise assets is also called free cash flow.，They are created by asset-based operating or investing activities over a period of time。But cash flows in future periods have time value，When considering forward cash inflows and outflows，Its potential time value needs to be eliminated，Therefore, an appropriate discount rate must be used for discounting。
The key to the DCF method is to determine future cash flows and discount rates。The premise for the application of this method is the continued operation of the enterprise and the predictability of future cash flows.。The limitation of the DCF method is that it can only estimate the value of investment opportunities that have been disclosed and the cash flows that can be generated by the future growth of existing businesses.，Failure to consider various investment opportunities in an uncertain environment，And this kind of investment opportunity will determine and affect the value of the enterprise to a large extent.。
(2) The internal rate of return method (IRR) assuming zero return. The internal rate of return is the discount rate that makes the net present value of the enterprise's investment zero.。It has some characteristics of the DCF method，In practice, it is most often used to replace the DCF method.。Its basic principle is to try to find a numerical value that summarizes the characteristics of corporate investment.。The internal rate of return itself is not affected by capital market interest rates，Depends entirely on the cash flow of the business，Reflects the inherent characteristics within the enterprise。
However, the internal rate of return method can only tell investors whether the enterprise being evaluated is worth investing in.，But I don’t know how much money is worth investing。Moreover, the determination rules of the internal rate of return method are exactly opposite when faced with investment enterprises and financing enterprises.：For investment enterprises，When the internal rate of return is greater than the discount rate，Enterprise suitable for investment；When the internal rate of return is less than the discount rate，The company is not worth investing in；This is not the case for financing companies。
Generally speaking，Investment or mergers and acquisitions of enterprises，Investors not only want to know whether the target company is worth investing in，Want to know more about the overall value of the target company。However, the internal rate of return method cannot satisfy the latter.，therefore，This method is more applied to single project investment。(3) CAPM model for assessing the value of risky assets in a complete market. The initial purpose of the capital asset pricing model (CAPM) is to value risky assets (such as stocks).。
But the value of a stock depends to a large extent on the level of risk involved in obtaining a return from purchasing the stock.。Its nature is similar to venture capital，Both discount future returns based on risk-reward rates.。Therefore, the CAPM model can also be used to determine the discount rate of venture capital projects while valuing stocks.。The expected rate of return on an asset depends on the risk-free rate of return、The market portfolio return rate and the size of the correlation coefficient。
The risk-free rate of return refers to the rate of return when investing in the safest assets such as deposits or purchasing government bonds.；The market portfolio return is the weighted average return of all securities on the market.，Represents the average return level of the market；The correlation coefficient indicates the correlation between the assets purchased by investors and the overall level of the market.。so，The essence of this method is to study the correlation between a single asset and the market as a whole。
The derivation and application of the CAPM model have strict prerequisites，There are strict regulations on the market and investors, etc.。On the premise that China’s securities market needs to be further improved,，The application of the CAPM model is subject to certain limitations，But its core ideas are worth learning from and promoting。
(4) EVA evaluation method that adds capital opportunity cost EVA (Economic Value Added) is an important indicator that has become popular abroad in recent years for evaluating corporate management status and management performance.，Introducing the core ideas of EVA into the field of value evaluation，Can be used to assess business value。
In the enterprise value assessment method based on EVA，Enterprise value equals invested capital plus the present value of EVA in future years，Right now：Enterprise value = invested capital + present value of expected EVA。According to Sten St.，EVA refers to the difference between a company's capital gains and the opportunity cost of capital。Right now：EVA = net operating profit after tax - total capital cost = invested capital × (return on invested capital - weighted average capital cost rate)。
The EVA valuation method not only takes into account the capital profitability of the enterprise，At the same time, we gain in-depth insight into the opportunity cost of corporate capital application.。By incorporating opportunity costs into the system, the ability of corporate managers to optimally select projects is examined.。but，Grasping the opportunity cost of the enterprise has become the focus and difficulty of this method.。
(5) Replacement cost method that conforms to the "1+1=2" rule. The replacement cost method treats the enterprise being evaluated as a combination of various production factors.，On the basis of inventory and verification of various assets，Evaluate each identifiable asset one by one，And confirm whether the enterprise has goodwill or economic losses，The appraised value of each individually identifiable asset is added together and then the company's goodwill is added or economic losses are subtracted.，You can get the estimated value of the enterprise value。
Right now：The overall asset value of the enterprise = ∑ Single item can refer to the assessed value of the asset + goodwill (or - economic loss)。The most basic principle of the replacement cost method is similar to the equation "1+1=2"，Think that enterprise value is the simple sum of individual assets。Therefore, a major flaw of this approach is that it ignores the synergies and scale effects between different assets.。
That is to say, in the process of business operation，It’s often “1+1>2”，The overall value of a company is greater than the sum of the assessed values of individual assets.。(6) Reference enterprise comparison method and M&A case comparison method. Reference enterprise comparison method and M&A case comparison method are compared with benchmark objects in the same or similar industry and status as the enterprise being evaluated.，Obtain its financial and operating data for analysis，Multiply by an appropriate value ratio or economic indicator，Thus, the value of the assessed object can be obtained。
but in reality，It is difficult to find a benchmark object that has the same risks and the same structure as the enterprise being evaluated，therefore，The reference enterprise comparison method and the merger and acquisition case comparison method generally split different aspects of enterprise value performance according to multiple dimensions.，And determine the weight according to the correlation between each part and the overall value.。
Right now：The value of the enterprise being evaluated = (a×dimension 1 of the enterprise being evaluated/dimension 1 of the benchmark enterprise+b×dimension 2 of the enterprise being evaluated/dimension 2 of the benchmark enterprise+…)×value of the benchmark enterprise。(7) The price-earnings ratio multiplier method for evaluating the market value of listed companies. The price-earnings ratio multiplier method is specifically designed for the value evaluation of listed companies.。Right now：The stock price of the company under evaluation = the average price-to-earnings ratio of companies of the same type × the earnings per share of the stock of the company being evaluated。
Use the price-earnings ratio multiplier method to evaluate corporate value，There is a need for a relatively complete and developed securities trading market.，There must also be a sufficient number of listed companies with complete industry sectors。
Since my country’s securities market is still far away from a complete market,，At the same time, domestic listed companies have great differences in equity settings and structures.，At this stage，The price-earnings ratio multiplier method is only used as an auxiliary system for enterprise value evaluation.，It is temporarily not suitable as an independent method to evaluate the overall value of the enterprise.。But in foreign markets，The application of this method is relatively mature。
3、The advantages and disadvantages of domestic enterprise value stock evaluation system in enterprise value evaluation，due to historical reasons，The cost method has become the preferred method and the main method widely used in the practice of enterprise value evaluation in my country.。However, the cost method also has various advantages and disadvantages in enterprise value evaluation.。The main advantage is to evaluate each of the company's assets one by one and then add them up to arrive at the company's value.，Simple and easy。The main disadvantages are that：First, it blurs the difference between individual assets and overall assets.。
All overall assets have comprehensive profitability，Overall assets are composed of individual assets，But it is not a simple sum of individual assets.。Various individual assets in the enterprise，It requires a large amount of human assets and a standardized organizational structure to carry out normal production and operations.，The cost-added method obviously cannot reflect the human assets of these individual assets of the organization and the value of the enterprise organization.。
therefore，Use cost method to determine enterprise valuation，Only includes the value of tangible assets and identifiable intangible assets，Unable to reflect goodwill as an unspecifiable intangible asset。Second, it cannot fully reflect the evaluation function of enterprise value assessment.。The value of the enterprise can be measured by the future operating performance of the enterprise.、Profitability forecasts are used to evaluate。
The cost method only evaluates the value of the enterprise from the perspective of asset acquisition and construction.，Failure to consider the operational efficiency and business performance of the enterprise，in this case，If the original investment amount of the same type of enterprises in the same period is the same，regardless of whether its benefits are good or bad，The evaluation values will tend to be consistent。This result is contrary to the objective laws of market economy.。
cost method、market law、The income approach is one of the three internationally recognized value assessment methods.，It is also generally recognized in my country’s value assessment theory and practice.、Assessment method used。As far as the method itself is concerned，There is no absolute method
Advantages
，As far as specific assessment items are concerned，for evaluation purposes、Evaluation object、Data collection conditions and other related conditions vary.，Appropriate selection of one or more assessment methods。
Because the purpose of enterprise value assessment is to provide standards or references for market transactions or management decisions。Fairness of assessed value、Objectivity is very important。
About Hong Kong Xintong
Hong Kong Xintong focuses onGuangdong and Hong Kong license plates、Shenzhen Hazardous Chemicals Business License、Shenzhen labor dispatch licenseandShenzhen Charity Foundationapplication services，Assist customers to applyShenzhen travel agency business license、Shenzhen pawn shop business license、Shenzhen auction house license and other mainstream domestic financial licenses，Support enterprises to achieve compliance expansion of cross-border financial business。Also availableODI overseas investment registration、International travel agency registration and other services，Help enterprises expand their presence in international markets。Provide one-stop compliance solutions for enterprises。To learn more，Please contactHong Kong Information Communications Consultant。
