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Research on the Evaluation Theory of Enterprise Value and Its Application

Author: ZuoNi
Tutor: HuangXiaoBo
School: Hubei University
Course: Accounting
Keywords: Enterprise Value Enterprise Value Evaluation Standard Deviation Correlation Analysis
CLC: F275.2
Type: Master's thesis
Year: 2013
Downloads: 49
Quote: 0
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Abstract


Enterprise value evaluation can make investors and creditors more clearly understand status of company, can make us determine law and trend of inner value fluctuations of stock,can make investment decision of rational investors by provides science pursuant, can provide more and more accurate reference for enterprise management, also can find some problem by enterprise value assessment. In the same time, adjusting operate policy and financial policy,to maximize enterprise value and shareholders wealth.This article describes four commonly used Enterprise value evaluation model. They are free cash flow, Market value ratios, residual income valuation and economic value added model. The first method is discounted free cash flow. This method is to discount the company’s future free cash flow on the basis that the future free cash flow can be forecast and the cost of capital is given, and so the value of the company is the present value of future cash flows. The second method is market price ratio method. Find one or several enterprises that are the same or a similar reference to the evaluated enterprises, then analyze and compare the important indicator of the assessed enterprises with that of the referenced corporate, and finally determine the assessment enterprise value. The third method is residual income valuation model. Considering the time value of money and the investors’ required risk premium rate, the intrinsic value of the stock is the current equity value coupled with enterprise expected residual income, which is discounted according to the discount rate. The forth method is economic value added model. The enterprise value is equal to the initial investment capital plused by the present value of the economic value added. Economic value added is the true economic profit gained from the net operating profit after tax minus all the cost of capital including equity and debt.This article used two methods of evaluation to evaluate enterprise value evaluation model. One way is to select the model with smallest standard deviation by comparing the standard deviation between assessed value and market value. Another is to select the better model by correlation and regression analysis of the assessed value and market value, with the market value as the dependent variable and assessed value as variables to set regression model. select a model with a larger correlation coefficient or regression coefficients as the optimal model of Enterprise value evaluation.This thesis takes60automobile manufacturing companies as samples, selecting financial report data from2009to2011. After the arrangement, then use six kinds of evaluation methods to evaluate each enterprise value, they are free cash flow, P/E, P/B,Operating net cash flow, residual income valuation and economic value added model, then use two methods to evaluate assessed results. The first method makes the conclusion that P/B is the best model with standard deviation of9.35and the better one is P/E of12.92.The second method makes the conclusion that P/E is the best model with correlation of0.614,and the better one is P/B with0.559.This thesis make the conclusion that P/B model and P/E model are the better enterprise value evaluation model than others by cross identification of standard deviation and correlation analysis.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management > Business accounting
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