The Simulation Of Cash Flow In Enterprise Valuation

Discounted cash flow (DCF) techniques are the basis of other valuation methods and ways which have the best theoretical meaning in enterprise valuation. DCF models have been the main valuation model and widely used. How to forecast future cash flow is one of the keys in the application of DCF approaches. The thesis tries to propose a new approach to forecast future cash flow by a computer simulation language, GPSS (General Purpose Simulation System).The whole thesis is composed of three parts:The first part is the theory fundament of the whole thesis. The part detailedly analyzes the meaning of free cash flow and enterprise valuation, then points out that entity free cash flow, as a basic parameter of enterprise valuation, can completely reflect enterprise value which is the total value including stockholder value and creditor value.The second part is the main of the thesis and a part about forecasting models. First, the part makes certain on the trend element of entity free cash flow through curve estimation models on the basis that the series of entity free cash flow has a trend, and tests whether the models are ideal or not. Next, the part tests whether errors of the models are stochastic variables which have certain probability distributing or not. Finally, the part simulates the future entity free cash flow by a computer simulation software GPSS. Therefore, forecasting entity free cash flow is finished.The last part is the application of future cash flow forecasting models. The part puts the way of forecasting entity free cash flow into practice. As a result, simulating entity free cash flow turns into simulating enterprise value. In the conclusion section, the thesis summarizes the study conclusion and points out deficiencies of the study and expectations of the henceforth study.