The Research Of The Company Value With Discounted Free Cash Flow Method

Guo Shuqing, the ex-chairman of the CSRC(Securities regulatory commission)strongly promote the concept of value investing, but investors are confused that how tooperate it. Get detailed analysis of the company’s intrinsic value, the value investing isan investment philosophy, when the price is lower than the intrinsic value and show aconsiderable margin of safety we take investment action. Based on the concept of valueinvestment, the research of free cash flow(FCF) and the discount rate, the paper providean analytical framework to assess the value of the company.According to the China Accounting Standards, The FCF obtained fourcomponents，adjusted net operating profit, non-cash expenses, capital expenditures,working capital increment. To avoid the bias caused by excessive prediction parameters,the historical cash lfow directly adapt ifnancial reporting data? select the trend growthrate method to determine the expected growth rate of FCF.Under the assumption of the investors’ rational expectations and unchanged capitalstructure, based on the source of the capital structure of free cash lfow, it will be dividedinto shareholders’ equity free cash lfow and debt free cash lfow. The study found thatthe shareholders’ equity FCF discount rate can accessed by the sum of the expected netassets return and the expected net asset growth; Taking into account the economic costsdue prepayments item and advances payable accounting item’s economic proiftability,debt free cash lfow discounted rate can be replaced by the interest-bearing debt,operating lease rates and the difference with prepaid advance accounts and thedifference between payable items that matched the opportunity cost. The weightedaverage of shareholders’ equity and debt free cash lfow discount rate is the free cashlfow discount rate. In the longer term, predictive validity lowered, the discount rateestimates by the opportunity cost match to investment targets, the value of company isaffected by the macro, industry and other external systemic risk factors, the professionalethics and ability of management signiifcantly inlfuence the company’s value tomaximize and reflect the company’s ifnancial strength and competitive advantage.The Wu liang ye case analysis showed that，The characteristics of the liquorindustry cause the Wu liang ye good proiftability, less affected by external. But therestill be a wide gap between the results of Wu liang ye with the Maotai. The lowmanagement capacity and lack of services enthusiasm for shareholders, the companyhas a cost advantage of economies of scale and differential advantage brought by thecharacteristics of the product. According the Wu liang ye company’s ifnancial reportingdata2007-2011，using the discounted cash lfow obtain the single value of equity Y16.53in early2012，far below the market price of￥33，the stock is no margin of safety,Wu liang ye has no investment value.