Business Valuation Of KM Corporation Based On Free Cash Flow

KM is an Chinese medicine industry leading company.With the expansion of the scale,the company need for a large number of money to arrange traditional Chinese medicine industry chain.So it intends to raise funds through the form of private placement of shares.However,how much is the company's current value? How to set a reasonable price? It is the problem which the company management need to know urgently.At the same time,the external investors also need to know the intrinsic valuation of the company,deciding whether to participate in the subscription.The article means to estimate the intrinsic valuation of KM from company management's and the investors' view.Firstly,the article analyzes the characteristics of medicine industry and KM company,combines with comparison of the valuation methods,selects the Free Cash Flow model as the valuation method.By testing and confirming the applicability of the Free Cash Flow model for KM company,and analyzing the Free Cash Flow model,the article concludes the application process of the Free Cash Flow model.The second,by basing on the KM company's business environment,strategy,main business and development prospect,combining with the analysis of 2010~2014 financial statements,the article estimates the main financial ratios and free cash flow of the company.The Third,estimating the capital cost by the CAPM model,combining with financial ratios and free cash flow,the intrinsic valuation of the company could be estimated by the Free Cash Flow model,and the range of intrinsic valuation also could be estimated by sensitivity analysis.Finally,it evaluates the company investment value by comparing equity value per share with the market price.The intrinsic valuation of the KM company is 91507861419.52 Yuan,equity value is 80885075345.65 Yuan,value per share is 18.39 Yuan on December 31,2015.It shows that the gross margin,capital cost,speed growth period and growth rate of main business are primary factors impacting on the valuation results by sensitivity analysis.The intrinsic valuation of the company's range is 31354.955~234736.331 million Yuan,and the most possible value is 91507.861 million Yuan by Multivariate sensitivity analysis.The estimated stock value of KM company is 18.39 yuan per share,while the market price is 16.95 Yuan on December 31,2015.It proves the rationality of the Free Cash Flow model indirectly.At the same time,the estimated valuation provides a reference for the company management and external investors.This article estimates intrinsic valuation of the KM company,providing a reference for external investors to make a decision.It also sums up the features of companies which are appropriate for Free Cash Flow model: Mature development,business stability and single,cash flow being easy to estimate and a little intangible assets,providing the reference for valuation of similar characteristics of KM company.