Application Research Of Absolute Valuation Method In Corporation Valuation And IPO In Film&media Enterprises In China

Along with the rapid growth of Chinese economy in recent years,more and more inestors entry into the film&media industry gains.Accordingly,secondary stock market is becoming the main solution for investors to get investment returns.Thus,reasonable valuation of these kinds of companies constitutes important base for return of investment and IPOs of these companies..Due to the unconventional business model of these companies whose profits are mainly driven by the intangible assets,including culture,originality and intellectual property(IP).We take China Film Co.Ltd(600977)as the case to study its corporation valuation and IPO pricing by using the absolute valuation method,based on its financial information in the past five years.First,we conduct a careful analysis on its financial statements(2011-2015),and rebuild these statements,based on the salient feature of its business model,e.g.,the high ratio of fixed-assets against revenue,and low weighted intangible assets,in order to obtain a stable forecasting about the free cash flows of this firm(FCFF)from 2016-2020.Second,we choose the proper stock market index after comparison to estimate the equity return of this company,while the cost of debt is estimated by its half annual reporting in 2016 so that a reasonable estimator of the weighted average cost of capital(WACC)is gained.Finally,we use the third quarter earnings of this company in 2016 to evaluate its IPO pricing in August 2016,based on the results of the corporation evaluation on this company.The results show that the stock price of China Film Co.Ltd floats around our estimator of IPO pricing in the following trading days,indicating that the absolute valuation method can work for this company and implying that this method can be used in the practice of corporation evaluation and IPO pricing in the film&media industry in China.Our analysis suggests that the absolute valuation method is useful for new emerging businesses,such as film&media companies.However,its validity depends on three factors: 1)the type of assets that have substantial impact on revenue;2)the business mode of these companies and its sustainability;3)the proper choice of stock market index.These results may be helpful to improve the practice in corporation evaluation and IPO pricing,optimize the allocation of capital in the film&media industry and further promote its sustainable development.