Study On The Market Method Of Business Valuation

The quick development of the modern capital market utmost promotes the enterprise resources flow between different proprietors. The vigorous development of enterprise merge and acquisition, recombine, transactions of stock right and risk investment offers an extensive application space for business valuation. In developed countries, the business valuation theory has formed a relatively comprehensive valuation theory and method. Now, assets approach, income approach and market approach are widely used methods. Market approach is the main method of business valuation in Europe and America. But in China’s business valuation practice, assets approach is the main method; income approach is the accessorial and market approach uses few.First of all. this thesis analyses the applicability of market method in business valuation. According to the basic theory of business valuation, Market is the best information source of enterprise value. If the enterprise be valued has an active open market, the market price is the best embodiment of enterprise value, therefore market method has been widely used in foreign business valuation practice. Based on the analysis of China’s capital market development degree, this thesis believes that the development degree of the stock market in China have meet the terms of the application of market approach. So, using market approach to evaluate enterprise value is feasible. Then, this thesis analyzes the quality of using market approach to evaluate enterprise valuation, and raises several problems in the practice of using market approach in business valuation:using single multiples, ignoring the influence of control premium and illiquidity discount.In order to solve the problems of using market approach in business valuation, the forth chapter puts forward several suggestions. To solve the problem of using single multiple, this thesis suggests choosing various multiples or choosing multiples using different calculation diameters. For the convenience of evaluators, this thesis establishes a relatively complete multiples index system. In order to solve the problem of ignoring the influence of control premium, this thesis analyzes the influence of control premium, and summarizes the studies by Scholars at home and abroad, and believes that the control premium ratio ranging from20%to40%. There is no mature mathematical model to measure control premium, so this thesis suggests evaluators choosing an appropriate control premium ratio from20%-40%basing on the industry characteristics of the enterprise be valuated. In order to solve the problem of ignoring the influence of illiquidity, this thesis summarizes the studies by Scholars at home and abroad, and believes that illiquidity lead to the decrease of equity value. This thesis analyzes existing measure methods of illiquidity discount, and suggests using B-S model. This thesis also suggests the appropriate illiquidity discounts for control interest and minority interest of unlisted company separately. According to the several improvements, this thesis puts forwards some improvements for the information disclosing quality of using market approach in business valuation.This thesis includes five parts:Chapter one is introduction, focusing on the research background and significance, research content and method, and literature review. Chapter two introduces the basic theories of business valuation and market approach. This chapter defines the connotation of enterprise, enterprise value and business valuation, and introduces relative theories of market approach, including supply and demand theory, Tobin Q theory and business valuation method system. Chapter three analyzes the application status and quality of using market approach in business valuation. In China’s business valuation practice, market approach uses few. However, according to the basic theory of business valuation and the development degree of China’s capital market, market approach is feasible. This chapter also analyzes the quality of using market approach in business valuation, and raises several problem, including using single multiples, ignoring the influence of control premium and illiquidity discount. Chapter four advances some improvement methods for the problems, and puts forwards some improvements for the information disclosing quality of using market approach in business valuation. Chapter five summarizes this thesis. The major contribution of this thesis, is establishing a relatively complete multiples index system to solve the problem of using single multiple. In addition, this thesis suggests measure methods for control premium and illiquidity discount. But there is no mature math model for measuring control premium and need further study.