DCF Models For Valuation Of Non-listed Firms In China

Discount Cash Flow Model (DCF) is supposed to be the most scientific and consummate valuation method in most literature concerning corporation merger and acquisition. DCF defines value of companies as the function of three factors, that is, (l)the period of the future cash flow; (2) the amount of the expecting cash flows in future; (3)the risk relating to the future cash flow. The fundamental principal is, the value of any asset is the summation of the present value of its expecting cash flows. As a result of different characteristics of the expecting cash flows, there are several forms of DCF model in practice.Compared with the listed companies, the difficulty to acquire the historical and future information of non-listed companies in short of public equity exchange market, brings corresponding difficulties to the valuation of these companies. In the view of valuation practice, the author discusses how to apply DCF models for valuation of non-listed companies more effectively. This paper especially probes into two problems in the valuation of non-listed companies in China, one is to measure the discount ratio of the expecting cash flows, and the other is the estimation of valuation discount for the lack of marketability.The paper is composed of five chapters. Chapter 1 introduces the fundamental principals, forms and preconditions of DCF Model, discusses the relationship of the valuation of equity to the valuation of integrate company. Chapter 2 involves in difficulties to use DCF Model in the valuation of the equity of non-listed companies. Chapter 3 and 4 analyze two key problems mentioned above, viz. the measurement of WACC with the antitheses method in Chapter 3, and based on the foreign research, Chapter 4 gives the equation to determine the valuation discount for the lack of marketability of non-listed companies in China. Chapter 5 gives an actual case to show the procedure of valuing the equity of non-listed companies in China with DCF models.