Valuation Of Gem Enterprise Based On Residual Income Model

In October2009, China GEM officially opened in the Shenzhen StockExchange board, but the accompanying high price-earnings ratiovaluation suffered criticism from the capital market. Which valuationmethod is more suitable for the GEM enterprise’ valuation has becomethe focus of capital market. The residual income model theoreticallycombines corporate value and accounting information, but it has beenseldom used in the valuation of China GEM enterprise. Whether theresidual model is suitable for the valuation of GEM enterprise and if itdoes, how to apply the residual income model more scientifically andaccurately has become a major issue for the valuation of GEM.The thesis firstly analyzed the practical characteristics of GEM, whichwas then linked to the analysis of several mainstream valuation models,and concluded that these mainstream valuation models were not suitablefor China GEM enterprise. However, the residual income model has theobvious advantages over other mainstream valuation models with regardto the GEM valuation applications. Combined with the improved DuPont financial analysis, the improved residual income model also enhancedoperability and reliability of the model. Finally, the application of theimproved residual income model on one enterprise of GEM–TOREADdemonstrates the practical operation of the model.Through the study of the thesis, compared to several othermainstream valuation models, the residual income model is more suitablefor valuation of GEM enterprise. What’s more, the application of theresidual income model also promotes the development of the valueinvesting philosophy.