How to value an industrial enterprise in the event of an M A?

Common methods are the discounted cash flow method and the market approach.

1 Discounted cash flow method.

The basic principle of the discounted cash flow method is that the value of any asset is equal to the sum of the present value of all its future cash flows. Since the acquirer only holds the equity of the acquired enterprise for a short period of time in an investment M&A, this method mainly evaluates the equity value of the acquired enterprise. The equity value of a business is obtained by discounting the expected equity cash flow using the cost of equity capital.

Expected equity cash flow is the cash flow after deducting the company's expenses, principal and interest repayments and all capital expenditures required to maintain the predetermined cash flow growth rate; The cost of equity capital is the necessary return on investment required by an investor when investing in the equity of a business. After calculating the equity value of the acquired company, it is compared to the acquisition **, and the acquisition is beneficial only if the equity value of the acquired enterprise is greater than the acquisition **. In addition, companies can also determine the optimal M&A plan by comparing the size of the discounted cash flow value of various acquisition options.

2 Market Approach.

The market method, also known as the price-earnings ratio method or earnings multiple method, is the capital market's reflection of the capitalized value of earnings, that is, the equity value of the company is equal to the target company's expected future annual earnings per share multiplied by the company's price-to-earnings ratio. Historical P/E ratios, future P/E ratios, and standard P/E ratios are generally used when using P/E assessments. Historical P/E ratio is equal to the ratio of current market capitalization to earnings for the most recent fiscal year; The future P/E ratio is equal to the ratio of the current market capitalization to the projected annual earnings at the end of the current fiscal year; The standard P/E ratio refers to a similar P/E ratio in the industry in which the target company operates.

The price-earnings ratio method is widely used in the evaluation for the following reasons: first, it is an intuitive statistical ratio that links the current company's profitability; Secondly, the P/E ratio is easy to calculate and easy to obtain for most target companies, which makes the comparison between them very simple. Of course, an important premise for the implementation of the market method is that the target company must have an active trading market, so as to be able to evaluate the independent value of the target company.

If it is a strategic M&A, it is also necessary to consider the synergies that will occur after the merger and acquisition, and consider the value of the synergies on the basis of the valuation calculated by the above two methods.

Under the market method and market method of enterprise valuation to determine the value, you can ask a professional asset appraisal agency to use it as a valuation and the appraisal report as a reference bid. You can try this online assessment,1Open Alipay, search on the home page:

Run the government, or the WeChat applet search for the government, 2After entering this government affairs applet, find the service of the evaluation report, 3Click to enter, fill in the address and enterprise information, and you can handle it quickly.

The basic methods of asset valuation are the current market value method, the present value of earnings method, the replacement cost method and the liquidation method. You can try this online assessment,1Open Alipay, search on the home page:

It's a big deal.

M&A valuation refers to the value judgment made by the buyer and seller on the underlying (equity or asset) purchase or **. The valuation of the target company depends on the magnitude and timing of the acquirer's future earnings. The valuation of the target company may be inaccurate due to improper conditions.

This exposes the valuation risk of the acquiring firm, the magnitude of which depends on the quality of the information used by the acquiring firm, which in turn depends on whether the target is listed or unlisted, whether the acquiring firm is hostile or bona fide, and the time taken to prepare for the merger and the target's pre-merger audit. M&A valuation is essentially a subjective judgment, but it is not arbitrary, and must follow a certain scientific basis.

Legal basis

Article 172 of the Company Law of the People's Republic of China provides that a merger of companies may be merged by absorption or by new merger. The absorption of another company by one company is a merger by absorption, and the absorbed company is dissolved. The merger of two or more companies to create a new company is a new merger, and the parties to the merger are dissolved.

The three methods of M&A value assessment are as follows:

The income method determines the value of the assessed enterprise by capitalizing or discounting the expected earnings of the assessed enterprise. The income approach mainly uses the present value technique, that is, the value of an asset is the present value of the future income that can be obtained from it, and its discount rate reflects the risk-return ratio of investing in the asset and obtaining returns. The income method is currently a more mature and widely used valuation technique.

The market method is to compare the value of the appraised enterprise with the reference enterprise, the enterprise that has already traded in the market, the equity of shareholders, ** and other equity assets to determine the value of the appraised enterprise.

The cost method, also known as the asset-based method, determines the value of the assessed enterprise on the basis of a reasonable assessment of the value of the assets and liabilities of the assessed enterprise.

Enterprise mergers and acquisitions, that is, mergers and acquisitions between enterprises, are the acts of enterprise legal persons acquiring the property rights of other legal persons in a certain economic way on the basis of equality, voluntariness, and equivalent compensation, and are a major form of capital operation and operation of enterprises. M&A mainly includes three forms: company merger, asset acquisition, and equity acquisition.

Business Valuation Methodology:

The reasonable assessment of the value of the target enterprise is one of the very important issues often encountered in the process of mergers and acquisitions and foreign investment. An appropriate valuation method is a prerequisite for an accurate assessment of the value of a business. This article will focus on the core methods of enterprise valuation, and analyze and summarize the basic principles, scope of application and limitations of the methods.

The basic methods of M&A valuation are:

1. Discount cash flow. That is, the discounted cash flow method is used to determine the highest acceptable discount rate (or cost of capital).

2. Asset value basis. The asset value basis method refers to the method of assessing the value of a target company's assets by estimating its assets.

3. P/E ratio model. The P/E model method is a method of determining the value of a target company based on its earnings and P/E ratio.

There are generally two types of valuation methods commonly used in mergers and acquisitions: cost method and income method. As for the cost method, it is divided into market price method and asset replacement method, etc., and the income method is generally the discounted cash flow method, that is, (NCF).