Research On The Improvement Of Income Method In Enterprise Value Evaluation

As an important branch of value evaluation,the emergence and development of enterprise value evaluation adapt to the needs of corporate mergers and acquisitions,restructuring,reorganization and other economic activities.It plays a very important role in social and economic fields.Income method,as a common method used in evaluating enterprise value,takes an enterprise profitability under overall conditions into consideration,so this approach can meet the growing demand for evaluation.However,income method is restricted greatly in the application of enterprise value evaluation because of income amount and discount rate which are based on enterprise free cash flow.Based on the analysis of enterprise value evaluation theory and the income method,this paper aims to seek a simple computing method for enterprise free cash flow.Meanwhile we are searching for a calculating method of discount rate applying to our market,so as to promote the application of income method in enterprise value evaluation.This paper is divided into three parts.The first part reviews development statues of enterprise value evaluation at home and abroad,and introduces the related theory of enterprise value evaluation,and comparatively analyzes the applicability and the limitations of three basic method used in enterprise value evaluation.The second part is to study and improve the income method parameters.Traditional computing method for enterprise free cash flow is complexity and high uncertainty of prediction.We start at these two factors searching a way to improve the prediction method of free cash flow.Simultaneously we analyze why overseas discount rate calculation method cannot well apply to our country,to explore suitable discount rate parameters for China market.The third part is case studies and practice tests,using specific cases to illustrate feasibility of the income method.This paper is mainly to solve the following two issues: firstly,aiming at complexity and uncertainty for forecasting enterprise free cash flow calculation,we can establish a connection between the past and future free cash flow by building bridges of data-operating profit;secondly,when calculating the cost of equity capital which belongs to the weighted average cost of capital model,we can replace capital asset pricing model(CAPM)which has a poor applicability in our country with rate of return on common stockholders' equity(ROE),and then combined with the formula for cost of debt capital to calculate discount rate.By analyzing enterprise value evaluation theory and income method,this paper makes it clear that relative parameters of income method has problems when assessing enterprise value,and then studies and improves the application of relative parameters in order to complete enterprise value evaluation theory and method and promote benign development of enterprise value evaluation.