Application Resreach Of Residual Income Model In Enterprise Evaluation

In recently two decades, with the development of economy and society, China has gradually come into the age of value management and value management. The executive management of the enterprise can produce the right strategy that enables enterprises to get the long-term development only if they truly understand the driving factors of enterprise value;and the investors can face the confusing stock market and buy or sell stocks at the right price only if they truly understand the intrinsic value of the enterprise.Therefore,it is particularly important to judge the value of the enterprise scientifically. Nowadays it is very rare that using the accounting data in the mainstream method for evaluation of enterprise value. The residual income model puts the accounting information as a variable in the value of the enterprise the in the model directly, which affirms the action of the accounting information in value assessment. What’s more,because the residual income model and accounting information are closely linked, the assessment of value is predicted on the base of a relatively objective accounting information rather than the judgment of the future.What’s more, the residual income model make it clear that the driving factors of the enterprise’s intrinsic value is the residual income not the merely profits, which helps the investors to judge the real value of the enterprise. The model has superiority in theory. But because the residual income model need a set of theory to modify the current financial data and it cannot match to the use of large samples, the model is not used widely in china. However,the objectivity and the prediction of the residual income model can help the investor, especially the value investor, a lot.Therefore, this paper counters the two disadvantages of residual income model in practical. One is the complexity that brought by the financial leverage and the other is the difficult in predicting the residual income. The paper introduces the improved form of residual income---the residual operational income model, simplifies the process of assessment and decompose the driving factors into basic financial indicators that in the relatively good stability, which will improve the objectivity and accuracy of prediction. At the same time, this paper chooses the Tong Ren Tang which has the relatively robust development and the relatively complete financial data and plays a leading role in the traditional Chinese medicine industry as a case. The paper makes some adjustments of the Tong Ren Tang 2008-2013 financial statements to meet the needs of the residual operational income model’s application. Then the paper makes reasonable prediction and determine the model parameters with the combination of historical data and its business development to make the enterprise’s value sense.When the valuation is ended, the paper analyzes the prediction of Tong Ren Tang and affirm the science and maneuverability of the residual income model in the evaluation of enterprise value. It will not only provide basis for investors to make decision in capital markets, but also helps the executive management of the enterprise set up value-centered management conception.