Evaluation Of Enterprise Value Based On Free Cash Flow

With enterprise acquisitions, restructuring, stock transactions and other property transactions have flourished, enterprise appraisal is the core of the transaction. As the same time, the goal of modern corporate financial management has already changed from pursuing utmost profits and owners' wealth to utmost corporate value. Therefore, how to evaluate the enterprise value has become a hot topic which has aroused much concern.This paper gives an overall study on how to evaluate an enterprise value based on free cash flow. It not only combines theory with practice, but also connects qualitative analysis and quantitative analysis with case study. It firstly points out that the motive of the study on evaluation and its great significance, followed by looking back the current situation of the evaluation study. Based on a number of research materials, the article analyses the domestic confirm of the concept of free cash flow, and the theory of the maximization of the enterprise value. In detail it compares the present several mainstreams value appraisal methods, and also points out that the free cash flow discount method has unique function and the practical significance. Dwelling on the frame of free cash flow of firm, it provides the practice with the theoretical basis. And it puts the evaluating frame into practical research with case study, mainly in the field of automobile, such as Dongfeng Automobile Co.,LTD. By studying the audited financial report in recent years and using Indicators of methods to infer the change trends of free cash flow, the result of evaluating appears. Finally a conclusion has been drawn and a simple description of the limitations have been taken on applying evaluation of enterprise value based on free cash flow. The enterprise value equals to the total discount of the free cash flow in the future. Free cash flow discount takes account of not only the sustainable development but also the time value of capital of the enterprise. Furthermore, the process of evaluation can also make increase of enterprise value clear. Therefore it is the best measurement method for evaluation of enterprise value.