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Income Approach Assessment in Hydropower Enterprise’s Application

Author: TanYan
Tutor: MaYongQiang
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: The ET Company hydroelectric power enterprises value evaluation income approach
CLC: F406.72
Type: Master's thesis
Year: 2010
Downloads: 101
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Since the 70s of the 20th century, the global economy becomes more prosperous, trade liberalization, along with the establishment of the European Union, deregulation of capital markets, business becomes ever flourishing. In addition to the daily production and the business activities, M & A activity has gradually become a regular choice. For corporate mergers and acquisitions business, a key issue is to determine the value of target companies. At the same time, the corporate management needs to maximize the shareholder’s wealth. Under the same interest rates of the debt and if the shareholder’s capital unchanged, to maximize shareholder’s value is equivalent to maximize the value of companies. Therefore, whether the maximization of enterprise value is achieved, is one important condition that evaluating the performance of company management, which requires a quantitative standard, will need to assess the business value. Accurate assessment of the enterprise value will help investors and managers to improve their decision-making.Currently, the international prevailing evaluation methods are mainly divided into income approach, cost approach and market approach. For the domestic hydroelectric power enterprises have been influenced by various reasons, they almost use cost sum approach as the evaluation method. But because of its own limitations, the cost sum approach may not accurately reflect the true value of hydroelectric power enterprises.For above, based on the ET Company, the article researches the application of income approach in hydroelectric power enterprises. The article includes five parts:The first part is introduction, including the research background, meaning, ideas, article structure, and the expected contribution and other aspects of the content.The second part summarizes enterprise valuation methods. According to the different characteristics and the different evaluation purposes, companies need to choose a different method of enterprise valuation. Aimed at income approach, cost approach and market approach, this chapter gives the principle, advantages, disadvantages and applicability.The third part is the technical description, including the analysis of the hydropower industry and the conditions of the ET Company in order to get the feasibility of using the income method to evaluate the ET Company’s value which is an example of hydroelectric enterprises and some data for the evaluation process.The fourth part is the assessment process. The author uses the two-stage model of the income approach, gets data from the ET Company’s financial statements and operating budgets and other information, analyses the income costs, the capital investment and other key data, and finally gets a reasonable estimate, and calculates the company’s future cash flows. For the calculation of the cost of equity capital, the model is the capital asset pricing model.The fifth part is the article research conclusion and expectation. This article uses the income approach to assess the company’s enterprise value, although each assessment methods have its own limitations, for the income approach, the data may have less objective basis than the data of the cost method, but I still believe the large amount of information in evaluation has already been played a valuable role during evaluating enterprise value with income approach and expect the cost method become more perfect in the future.Here are the innovations of this paper:(1) At present there rarely use income approach as an enterprise valuation for hydroelectric power enterprises. This paper is an attempt definitely that use income approach to estimate enterprise value for ET Company. It believes that with the development of evaluation technology and improvement of the degree of information sharing, more and more enterprises will evaluate value by income approach so that enterprise’s real intrinsic value will be reflected more accurately.(2) The detailed assessment process and the accurate data. The assessment of enterprise value by the income approach is definitely not a number game. Each of the data is derived from the company’s financial statements and annual budget.(3) The innovation of the creative aspects. The income approach is an excellent principle, but it has not been widely used during hydroelectric enterprises. Using the income approach to assess the value of hydroelectric power companies, some problems may occur, and even assess the intrinsic value of the results of a major departure from business situation. However, if you give up using the income method, it is tantamount to unworthy. Here, the author uphold this attitude is not intended to evaluate the worth of the ET Company, but focus on that how to use the income approach to assess the value of hydroelectric power companies better.

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CLC: > Economic > Industrial economy > Industrial economic theory > Organization and management of industrial enterprises > Financial management and accounting > Financial management, cost management
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