Research On Value Investment Based On Improved DCF Model

With China's capital market integrating with international capital markets,the Value Investment Theory of international investment community was introduced to our country in 2001.Value Investment Theory advocates that people should invest enterprises whose share prices are underestimated by the market,that is,buy shares in their own circle of competence at a sufficiently low price,and sell the stock to obtain excessive profits in the process of enterprise value growth and stock return.Benjamin Graham is known as the father of value investing,who believes that intrinsic value is crucial.Buffett inherited and developed the theory of value investment,who thinks that Williams' s cash flow discount model can be a good assessment of the intrinsic value of the enterprise.Value investment theory usually uses the DCF model to evaluate the intrinsic value of the firm.The DCF model uses the percentage of sales method to determine the FCF parameters.There is often a certain degree of subjectivity in estimating the future growth rate of the firm,and the ratio of the project to the operating income in the financial statements may not be stable for a long period of time,so the forecast may be subjective.Professor Copeland proposed a free cash flow formula,in which the parameters come from the management of financial statements,and it is more in line with the operating conditions of the enterprise.However,two items in the formula can not be extracted directly from the management financial statements.Liquor plate is an important part of the capital market;cash flow is good,which is very suitable for the use of DCF model for value investment research.Liquor industry experienced a trough,and the current fundamentals have been warmer.Liquor plate shares continue to rise,especially the leading enterprises of Guizhou Maotai,whose stock price has been up to 400 yuan.How much is its intrinsic value,whether the stock has reached or is higher than its intrinsic value? These are issues that a lot of investors are very concerned about.Based on the comprehensive analysis of the domestic and foreign value investment theory,this paper introduces the time series analysis method in the econometrics to improve the DCF model.Combining with the factors influencing the change of the enterprise value,this paper uses the improved DCF model to carry on the value investment empirical research,and construct the value investment method suitable for our country.In the empirical study,taking into account the limitations of the DCF model,this paper attempts to improve it: first,simplify the calculation of FCF;second,use time series analysis method to replace the percentage of sales method to predict future free cash flow.After free cash flow calculation formula is simplified,the data of each project can be extracted from the management of financial statements.Time series analysis method is based on the history of free cash flow changes in the law,predicting the future free cash flow through the Eviews software,which reduces the subjectivity of artificial assumptions.In the process of value investing in the liquor sector,we found that the annual cash flow of the sample enterprises fluctuated greatly.Therefore,we added the variance index of the annual growth rate of the cash flow according to the actual situation.The index can well reflect the rate of change in the annual growth rate of cash flow and effectively control the investment risk.Finally,it is concluded that the least risky investment in the liquor plate is Guizhou Maotai.The value investment research of this article has passed the F and T tests.It proves that the intrinsic value of the stock of the sample enterprise is statistically significant with the market price,indicating that the improved DCF model can well evaluate the intrinsic value of the stock and constructs the research method of value investment suitable for China.Investors can learn from the research ideas and methods of this article,and conduct research of value investment in other parts of the capital market to improve the scientific nature of value investment.