Comparative Study Of Three Kinds Of Enterprise Valuation Models And Their Explain Ability To Stock Price

In the assets appraisal theories, enterprise value assessment theories are important parts. The assets appraisal institutions usually use the cost method and income method to assess the enterprise valuation. In these methods, the dividend discount model is the most basic model, free cash flow (DCF) model is used most frequently and is also the most mature one, and, the residual income model is used less. However, foreign scholars have found that the residual income model is more applicable than free cash flow model, then is the residual income model as effective as foreign in China? Which model is more suitable?According to the market effective hypothesis, we can infer that in strong efficient market stock price should be equal to the value of stock. But Chinese scholars found that our country has not yet reached expectant strong type of effective market, therefore, in our country, the stock price don’t reflect the value of stocks in the market. But I think even if the stock price volatility, on the whole it also fluctuates around the stock value. Because the stock value decides to stock value, in the long run we can use the stock price represents the value of stock. Therefore, this article through comparing explain ability to stock price of three kinds of models of enterprise valuation models to stock price to determine the applicability of these models.First, this paper introduces the related concepts and methods of the enterprise value assessment and compares these methods in theory. Through the analysis I think earnings method is more applicable in our country, at the same time three methods of income approach theory are introduced and compared. Then, we select electrical machinery and equipment manufacturing and information transmission, software and information technology industry in 2009 to 2014 years of Shanghai and Shenzhen two city A-share listed companies as the research objects. Through the two industries samples, we study if the residual income model is suitable in our country, and which industry is more applicable in which kind of evaluation method. Through the empirical analysis I find that the residual income model to the correlation of stock prices is larger, to explanatory ability of the stock is stronger and more stable, and over time the stock explanatory power is in enhancement. Three models combined explanatory power is stronger, but volatile.Based on all the samples and the analysis of the two industries, it is concluded that the residual income model is more suitable for enterprise value assessment, and for two completely different industries, the explanatory power of stock prices is stronger, and more stable. With the passage of time, the explanatory power will become more strong, it also illustrates the capital market in China continues to improve. To share transfer, merger and acquisition and other related enterprise value assessment activities in capital market, this paper has certain reference value and guiding significance.