A Research Of Residual Income Method In The Evaluation OfEnterprise Value Taking Shanghai Pharmaceuticals Holding Co.,Ltd For Example

With the rapidly growing in the domestic economy and the continuously development in the capital institution, more and more investment behaviors become aware of the importance of the evaluation of enterprise value and regard it as a key factor, as well as other specific fields. It would affect not only the private investments, domestic enterprise activities including modification, reorganization and merger, and so forth, but also the merger between international corporations. The most important problem to solve in present is how to choose the optimal evaluation method in order to achieve the most objective, scientific and precise results.Based on the definition of enterprise value, this paper is intended to find the most practical criterion and premise of evaluation via analyzing the objective of enterprise value from different perspectives. The traditional methods, such as income approach, cost approach and market approach, are represented at the beginning, which includes evaluation orientations, conditions and necessary market. After summarizing the advantages and disadvantages of the traditional methods, we introduce a new method of real option.Based on all of these, we make a comparison between all this method which will lead a conclusion that the residual income model is more appropriate for China’s capital market environment.Residual income model evaluation method is one of the most objective and effective methods for enterprise valuation. Because our country stock market lack of effectiveness and capital market is not mature enough, together with its normative remains to be improved, the market urgently needs a way to guide people’s investment behaviors which is the background of residual income model. At present, there are a lot of methods for enterprise valuation and more than a dozen of assessment model in the practice of the evaluation. But from the study of the whole Europe and the United States and other western developed countries, the residual income model is the most effective to consider the return for investors in investment and reflect the enterprise business activities. The method is more effective than dividend model and discount cash flow model in calculating intrinsic value and stock price changes. As a result, we will pay attention to the application of the residual income model.Residual income model can establish contact between the enterprise evaluation method and financial information effectively, financial information plays a important role in this model. Therefore, this article absorb many famous theory of domestic and foreign well-known scholar for the residual income model and introduce in the Du Pont analysis system combined with the feature of relevant financial data of our capital market. By improving the residual income model, the model is transformed into a easy way to understand which includes sales net interest rate, asset turnover, equity multiplier etc. so as to achieve the aim of simplifying the model.Also, the residual income model is not very perfect, we also hope to see the limitation of the residual income model through the evaluation which will give us more clear scope of application, so as to provides more references for the research.