Study On The Application Of Residual Income Model In Enterprise Evaluation

The new normal of China's economy is breeding a great strategic opportunities that can promote the development in various fields. In such a macroeconomic environment, integration and strategic investment of industry mergers and acquisitions is an effective way to facilitate economic restructuring.Value evaluation is the focus of the realization of this strategic approach. However, the valuations of the information technology industry, which is active in M&A activity, are becoming stretched. So now comes the question, what method of assessment that can provide scientific, reasonable and objective results. It is the major issues to be addressed in valuation.From many scholars' study, the residual income model has an absolute advantage on the explanation of the price of stock, relative to the dividend discount model and cash flow discount model.What's more, residual income has an inner correlation with income and earnings forecast. Under such background, this paper carries on the research about the residual income model's application in valuation.After the beginning of the paper, it derives the basic form of the model out of the hypothesis conditions, then expounds the value types and the development of the residual income model in the evaluation. The formula is the basis for the improvement of the model. Based on the advantages of the residual income model and the characteristics of the information technology industry, the paper emphasizes the research model of the whole article, and gives the specific formula for evaluating. Taking Lanxum, the information technology industry and high-tech enterprise, as the case research object, the paper analyzes the factors that may affect the parameters of the model from four aspects of Lanxum: the macro environment, development prospects, operation ability and capital structure. On this basis, the paper usesrelated data to predict and determine each parameter in the model, finally obtains the assessment of Lanxum. In the analysis of the assessment, the paper compares the results in two different circumstances:simplify the value prediction of the follow-up period and introduce p/e multiplier to the follow-up period. It is concluded that the valuation of the follow-up period is lower than the detailed forecast period and the overall valuation will greatly underestimate the enterprise value in the former case. The assessment of the model with p/e multiplier is higher than the stock price of Lanxum. Moreover, the result which uses the dynamic p/e ratio is more close to the stock price compared to the result that uses the static price earnings ratio. Then the article applies the model of dynamic p/e ratio to evaluate the equity value of Lanxum in2013 as well, which is lower than the value in 2014. It is turned out that Lanxum has a value of the investment, and an enterprise with continual growth. Finally, through the analysis of Lanxum, we can get the quantity and the efficiency of the value creation, then put forward some suggestions for reference from the perspective of value creation.