A Study Of Assessment Method Selections Based On The Life Cycle Of The Listed Company

Valuation of a listed company is one of the most important and crucial link for security analysis. Since listed companies are a kind of public companies, their value is a key point closely concerned by the investors and potential investors. Meanwhile, the value increment of listed company is also a goal followed by the managers who are engaged in activities of company management and operation. As a matter of fact, assessment of a listed company's value is actually the evaluation of the company's value creation ability by operation assets.The research angle of this paper is to apply the theory on life cycle to the practices of evaluation of the listed company's inner value. It firstly establishes a model for judging the value of listed companies during life cycle stage, and then studies two mainstreamed valuation methods under the visual angle of life circle—Discounted Cash Flow and Comparative Multiplier Methods. Moreover, some improvements on the mainstreamed evaluation methods are made. It also introduces and studies other evaluation methods except the mainstreamed ones. Finally, this paper explores the applicability of the business valuation methods, and proposes the basic thread of studying and analyzing the driving factors of the value of listed companies in our country.In the process of collecting and comparing the domestic and foreign theories related to business valuation and life cycle, the features and shortcomings of all these theoretical researches are summarized in this paper as the breakthrough point of this research. Regarding the researches on enterprise life cycle, the foreign scholars mainly focused on the stage division of the life cycle and the financial features of enterprise life cycle. In recent years, scholars in our country attached great importance to the management of life cycle and enterprise earnings and accrued features etc. When studying enterprise life cycle. The domestic and foreign scholars have already built a relative consummated system on researches of theories and methods for enterprise business valuation. Scholars in our country mainly focused on empirical testing of listed companies'market data, and few of them have been involved in dissertation of valuation methods, In recent years, Chinese scholars conducted researches and explorations on the valuation of different enterprises. However, regarding the application of life cycle theory in valuation practices, there are not many scholars devoting themselves in this area.Based on the enterprise life cycle theory, this paper further studies the standards and methods for the stage division of life cycle of listed companies in our country, and analyzes the stage features of changing trend of the companies. It builds a four-stage model which can judge the enterprise life cycle stage preliminarily and a three-stage model with much better operability. By using the aforesaid two models, and part of the listed companies in A Share Market of our country as the research objects, this paper studies the application of life cycle model in judgment of listed company life cycle stages, and the specific judgment goal is the life cycle stage in which the targeting listed company is.The main research content of this paper is to discuss the theories and methods of valuation of listed companies under the framework of life cycle. The key points of the research lie in the two mainstreamed valuation methods-- discounted cash flow and Comparative Multiplier Method under the visual angle of life cycle.When studying the method of discounted cash flow, this paper analyzes the features of operating cash flow, investing cash flow and free cash flow in all stages of life cycle, as well as the changes of interest growth and dividend distribution in different stages. Free cash flow is an important testing tool for the shareholders to evaluate a company's value and it refers to the residual cash after payment of all the expenses by cash and operation investment. Free cash flow is also a repay to all kinds of the reimbursement seekers particularly the shareholders. Many investors prefer to place the company's ability of producing cash flow in the first place among all the indicators. Interest, dividend, and asset value are important indicators as well, whereas the growth all these indicators are actually decided by the company's ability of producing cash flow.Concerning the researches on Comparative Valuation methods, this paper does not adopt the traditional model of Comparative Valuation but applies each of the Comparative Valuation to mature and stably-growing enterprise and two-stage growing enterprises, based on which the multiple-stage growth mode of enterprise is deduced. This is one of the innovations in this paper. The application of Comparative Valuation requires two conditions:1. in order to evaluate the assets on a comparative basis, the price should be standardized, and the ration of price to profit, book value or sales will be utilized. Enterprise value can be expressed as the product of price ration and relevant price rate base.2. The second condition is to find out similar enterprise for comparison, while this is also the difficulty for the application of Comparative Valuation in reality. For this paper, it is required to find out a comparable enterprise wit similar life cycle stages. Therefore, the comparable enterprise is not limited to those in the same industry, so long as the life cycle stage, cash flow features and risks of the company are similar to that of our research object, it can be selected as the reference company for the research. Regardless of using which multiplier for valuation, it is necessary to indentify the growth stage of the company so as to choose the corresponding growth model.During researching on the mainstreamed valuation models, we found they share a remarkable feature, that is, accounting information is not fully utilized in valuation. In fact, in the capital market, accounting information plays a huge role. The investors pay close attention to the financial statements of the listed companies, and adjust their Portfolio Investment based on the companies' profitability. Many listed companies also influence the stock price and capital market by their earnings management, whereas the concept of surplus profit will connect the inner value of a listed company with the income of each share and the value of equity in the financial statement directly. Surplus profit valuation model is an accrued accounting valuation model. To apply accrued accounting system to surplus profit valuation model will be more accurate than cash flow model, and its applicability is also much better. On the basis of affirming the strongpoint of surplus profit valuation model, this paper makes further improvement upon it, including improving the valuation of listed company after predication period, introducing price-book value ration to the model. In this way, the surplus profit valuation model is given with a range in calculation, and the model after improvement will further enhance the reliability of predictions.In addition to studying and improving the mainstreamed valuation methods, this paper also discussed the development of valuation methods, including the latest development of discounted cash flow, Real Option and economic value added method etc.. There is no definite answer regarding if the option valuation will replace the traditional discounted cash flow and comparative valuation method. Compared with the mainstreamed valuation methods, Real Option can help to solve the difficulty of valuation of listed companies with anticipation of exogenous growth. Economic value added method conduces to adjust operation net income and eliminate the influence of some distorted accounting information, thus it can better reflect the operation situation and investing value of a company. However, all these methods have their own difficulties and limitations in application.Facing the evaluated company and its value of equity, we need to make decisions to choose the most proper valuation methods, such as discounted cash flow, comparative valuation, and so on. Meanwhile, further choices should be made to select the most suitable models covered by each of the valuation method. These choices are influenced by the valuated company's basic features, including the profitability, growth potential, reasons for profit growth, stability of debt ability as well as the company's dividend policies etc.. To match the valuation model with the valuated listed company is an important component of valuation. In the valuation process, to understand the valuation models correctly and obtain accurate basic data are of the same importance. This paper finally offers some quantitative and qualitative judgments on the factors generating and driving the value of listed companies in our country, studies the influences of life cycle factors on the creation of value, and proposes basic thread for researching on and analyzing the driving factors of the value of listed companies in our country.The possible innovations made in this paper include:1. Innovation in research visual angle. Though the valuation of listed company and valuation theory are growing relative mature, valuation methods of listed company under the visual angle of life cycle is a new vision, and few domestic scholars have studied this area.2. Innovations in comparative valuation methods. This paper did not use the traditional simple model of comparative valuation. It just applies each of the comparative valuation methods to both mature & stably-growing enterprises and two-stage growing enterprise, based on which the enterprises with multiple-stage growth model is deduced.3. In combination with the actual situation of China, this paper also attempts to apply the theories and methods to offer a thread for optimizing valuation, value creation and value management of listed companies in China, which is a preliminary attempt with creativity.