Research On Enterprise Valuation Methods Based On The Private Equity Investment

The world’s first private equity fund was established in1946, more than60years ago. According to statistics, more than10,000PE are managing and operating more than2trillion dollar assets. PE institutions play a vital role in promoting the combination between industry and finance. Whether or not goals will be successfully achieved in PE, an issue of essential importance is to reasonably assess the target enterprise and the key to a reasonable assessment is a proper assessing method.In order to find a suitable assessment method, this study, based on former research results, combed through mainstream assessment methods, namely asset approach、income approach、market approach, meanwhile made a comparison of their principles, applicability and limitation among the four methods, reaching the conclusion that the target enterprise’s growth is PE focus. According to PE’s focus as well as the existing valuation methods in practical problems, this study displays the reason for which P/E ratio is commonly used by PE. On the basis of P/E ratio, to meet the practical needs of PE operation as well as to reflect the growth of the target enterprise as the core purpose. For one, the index system is enriched, taking into account the reflection of enterprise growth financial indicators, such as the main business growth rate, net profit growth rate, profit rate of main business; For another, it is advisable to choose a similar corporation in business as a reference, according to which, the target corporation is rated. Finally based on P/E of the reference corporation, the P/E of the target enterprise should be determined.In order to test the practicality of the modified P/E ratio, this study chooses two recent cases in PE to test the modified P/E ratio and its simplified version respectively. The result reveals that the modified P/E ratio is more reasonable structure and more suitable for the market operating rules than the traditional P/E ratio.