Research Of Security Investment Strategy Base On Discounted Cash Flow Technique

Value investing has been highly respected, but investors are very confused about how to properly operate it. Based on the concept of value investing, the research of report adjustment, ROIC, growth, free cash flow and the discount rate, this paper studies how to use the discounted free cash flow method to assess a company’s value. Then, based on this method, combined with ROIC and growth, we build the investment strategies and carry out empirical research on China’s stock market to analyze whether this portfolio can get excess returns.Firstly, this paper briefly introduces the current research status of domestic and foreign company valuation and the domestic common method of Valuation Company. Then this paper put forward the research meaning, purpose, framework and innovations.Secondly, this paper detailed describes the method of discounted free cash flow to assess the company’s value. First based on combined with industry analysis and company analysis we adjust the company’s financial statements to stripped off non-operating assets and capital structure. Then detailed analyze the company’s historical performance and carefully predict future performance. And then discount the FCF to present value to obtain the value of the company. Finally take the RENHE PHARMACY CO., LTD as an analyzing sample to show how to use this method to assess a company value.Finally, based on the analysis of the value creation framework, enterprise value drivers, combination of ROIC and the growth rate, we proposed the securities investment strategy which base on discounted free cash flow method. We build a portfolio based on Shenzhen main board market. And take hypothetical test on whether the portfolio can obtain excess returns. The test results show that the discounted free cash flow-based investment strategies can significantly beat the market average return. So this method exhibits good investment results.