Valuation Analysis Of Emerging Companie

With the continous development of economy,companies that explore new fields and rely on high-tech are booming.They can often become leading companies in the country or even the world in a short period of time,which can exert a significant influence on both the economy and social life.Behind the rapid development of these enterprises,the support of venture capital is often inseparable.For venture capitalists,how to value the target enterprise is the core issue.Without a reasonable valuation,it is difficult to make a reasonable investment.The current representative method for corporate valuation is the DCF method based on NPV.However,due to their own characteristics,this method cannot be fully applied to newly-rising enterprises.How to reasonably estimate and invest in these growing companies has become a key problem that needs to be resolved.Many new methods have been proposed in academia.Real option method which based on option pricing was been agreed quite.Real option method is a valuation method that treats real assets by analogy with financial options,but real assets have much different from financial assets.Therefore,the application of real option method needs to choose the appropriate method and modify according to the actual situation.This article explores the theory and application of real option method.After reviewed literature on real options,the most research on real options is to establish research models,focusing commercial and technical games between enterprises and competitors,less on the games between enterprises and venture investors.This article attempts to research and discussion on the issue.1.Multi-stage compound real optionThis article focused on multi-stage compound real options.Those venture capital investments to enterprise mostly were divided into multiple stages or rounds,and the stages were performed sequentially and affected each other.Therefore,it is important to establish the compound real option model.Based on the simple compound real option valuation model,this article discusses the compound real option valuation model with multi-stages and multiple uncertainties.Through contingent claims method,the new n-stage compound real option model was derived by constructed risk-free arbitrage portfolio,and expanded the original model.Calculating the differential equations of parameters,qualitative judgment about the influence of main parameters was get.Finally,the real option model was regarded as a multivariate function with multiple uncertain factors,and sensitivity analysis was performed on five uncertain factors.2.Multi-stage investment and optimal policy with gameSecondly,this article discussed the game between VC-investor and corporate party.VC-investor and corporate would be staged financing.This is a sequential game decision model.For VC-investment projects,the parties have to agree and reach the next stage.The earnings of the two parties were distributed by the shares between the investor and enterprise,abandonment would lose the possible earnings.Each stage of investment may meets different uncertainty,so the threshold on each stage needs to be recalculated based on uncertainty.Similar to the option method,this article constructed the geometric Brownian motion model to describe the value fluctuation,calculated the option value and threshold of each stage from the last stage.The threshold is the game equilibrium point of both parties’ gains.Adjusting the shares of both parties would change the threshold and decisions.Finding the optimal strategy for both sides and analyzes the investment threshold,then get the difference in impact on results under different conditions by comparative static analysis.3.Bond and stock review by option and debt-to-equity pricing.Converted enterprise equity and debt into option,the shareholders and creditors would hold assets(debt)and options respectively.Then,the equity and debt could look as option and be valued by options pricing model.This article discussed debt-toequity swaps.Real options are based on real assets,while financial options usually are standardized,which are different.In the actual process of debt to equity swap,VC-investors usually "invest first" and "repay debt later".Therefore the exit of venture capital may also have an impact on the enterprise value and yield.So the corresponding variables were introduced and the standard option valuation model was modified to meet the new assumptions.In this article,the model would derived by contingent claims method--constructed the risk-free asset portfolio.The calculation of the asset portfolio showed that even if the debt-to-equity swap did not affect the expected return of the enterprise,it will remain risk-neutral,also had no effect on risk appetite.Finally,the modified standard option model was deduced and obtained a new valuation formula.In summary,this article studied the theory of multistage compound real option model and development based on real option pricing model,discussed game between the investor and enterprise,as well as the optimal strategy and the influence of different conditions on both sides.At last,taking debt-for-equity as the starting point,modified the classic option pricing model to value better on debt-to-equity swap..These researches had both theoretical and practical significance.They maybe helpful to the value enterprises,especially the valuation of venture investment on start-ups,and promote new industries development.