Research On The Application Of Discounted Free Cash Flow Method In The Merger And Acquisition Of Inland River Ports

Mergers and acquisitions is the preferred way for enterprises to quickly become bigger and stronger,in recent years,with the deepening of China’s market economic system reform,increasing market competition,the enterprises in order to optimize the allocation of resources,improve their competitive ability,have to join the tide of enterprise M&A,the scale of the M&A enterprise is bigger and bigger,and this trend will continue to keep going and penetrated into all walks of life.On March 28,2017,the chairman of the National Committee of the Chinese people’s Political Consultative Conference decided to list the "the Grand Canal economic belt as a national strategy" as one of the 14 key supervision and research proposals.Under this background,the merger and acquisition of the inland ports along the Grand Canal will inevitably be the trend of the times.With the same enterprise merger and acquisition in other industries,the focus of merger and acquisition between inland ports is also necessarily the market value of enterprises.How to evaluate the port market value scientifically and accurately is the key to the success of merger.This paper firstly combed the current mainstream enterprise value assessment methods,summarizes the precondition,applicable range and advantages and disadvantages of the mainstream methods.Then made a detailed introduction about the macro background,the industry competition situation and the M&A situation and motives of both sides which faced by the inland port along the grand canal,and we get a conclusion that the Discounted Free Cash Flow Method two stage model is the preferred method for inland port for mergers and acquisitions.Take the example of the port S M&A port J,according to last five years financial data of the J port,we makes a comparative analysis of the operating capacity,debt paying ability and profitability of J port enterprises,and revised the relevant financial data of J port.On this basis,the free cash flow and discount rate in the two stage model of Discounted Free Cash Flow Method are analyzed and predicted in the two stages of the next five years and the perpetual period respectively.In the prediction process of J port free cash flow,influenced by port throughput capacity,there is a peak value of the free cash flow which need to pay special attention and the free cash flow should be adjusted accordingly in order to avoid the predictive value exceeds the peak,making the evaluation value of the enterprise is overestimated,and the result of the evaluation is wrong.By extension,other industries should also consider the cash flow peak when applying the Discounted Cash Flow Method to evaluate the enterprise value.In the forecast of discount rate,according to the Capital Asset Pricing Model(CAPM),it is necessary to calculate the parameters such as risk-free return rate,system risk coefficient,and risk premium.It is difficult to calculate discount rate for inland port enterprises with few listed companies.Therefore,the system risk factor beta can use the wind financial terminal to find the system risk factor beta of the seaport enterprises and individual inland ports listed in Shanghai and Shenzhen 300 in the same industry,and take the average value as the beta of the target enterprise.In addition,it is possible to calculate the risk-free return rate and risk premium by referring to the interest rate of 10-year treasury bonds and the average market return of inland ports,so that the calculation of discount rate becomes clear and concise.Finally,according to the revised forecast free cash flow and discount rate,the value of enterprise evaluation in J port is calculated and the application of cash flow discounting method in inland port M & A is prospected.It is hoped that this research in this paper can provide some reference and reference for the next merger of inland river ports and the evaluation of enterprise value.