Application Of Firm Valuation In Merger And Acquisition

China is in the process of shareholder structure reform starting in May 2005. The era that all kinds of stocks can be free float ( tradable on the exchanges) in the stock market will coming soon. After China joined in WTO, Chinese stock market has become more internationalization under the trend of economic globalization. Under these compositiones of forces, Chinese stock market will turn into a blooming period of M&A. And that firm valuation is very important in the process of M&A.Firm valuation has mature and systematic methods. The article begins with firm valuation theory analysis. It indicates there're three firm valuation methods in common use: discounted cash flow method (DCF), relative valuation method and option valuation method. Three methods can be used respectively or synthetically depending on the condition of the target company. Then the article links with Chinese stock market deeply introduces the theory and the using process of DCF valuation method. Series reforms started in May 2005 on Chinese stock market make it possible for DCF being used widely in our market. It will be more market-oriented and reasonable to use DCF method making price on listed company and related company in M&A.From chapter 2 to 4, the article goes deeply into analysis gradually from valuation basic theories to how to use these theories in M&A process. Then in chapter 5, the article uses related knowledge of finance management, management and finance synthetically and combines with an M&A case (a merge between SHANGHAI No.1 Department Store Co., LTD and SHANGHAI HUA LIAN Commercial Building Co., LTD) to demonstrate the whole process of firm valuation. Through the process, by using lots of information, author deeply expounds the approach and some key points of DCF valuation method.By combining theory with practice, the article attempts to use DCF valuation method in M&A valuation in our stock market.