The Application Of Discounted Free Cash Flow Approach

With the development of the capital market, evaluation of enterprise value has been a must in the core of enterprise outside property trade and ernteprise inside investment,financing activities which based on the capital market. Now value evaluation is an important research content in the fields of banking,investment,and financing and so on.How to correctly understand enterprise value is what value evaluation wants to solve.This means that we want to correctly estimate the value that contains all the assets in the corporation and the whole corporation as a whole,neither underestimating nor overestimating the value.We all know that the forecasting of future free cash flow and the quantifying of the discount rate is the base in the application of free cash flow approach.These two base decide the accuracy of the evaluation results to a great extent,especially the the forecasting of future free cash flow.However it's very difficult to forecast the future free cash flow.Because there are many factors will affect free cash flow.Besides at present the financing theories and economic theories can't afford a series of guides about cash flow forecasting in the actual work.So whether we can make a credible prediction on the base of mastering the uncertainty of free cash flow has a decisive significance to correctly estimate enterprise value. This paper wants to set up a effective forecasting model of future free cash flow basing on previous research to slove the forecasting problem in actual work.Bsides this article will make empirical research on the application of discounted free cash flow approach—Dong A A Jiao Ltd. By this, we can come to a conclusion that the discounted free cash flow approach is of good maneuverability in China.