There are many methods of enterprise valuation, such as asset-based method, income method, market method, enterprise value/earnings before interest and tax method and comparable price-earnings ratio method, and each method uses different enterprise status.
1, asset-based approach
Asset-based method is also called "cost method", that is, the net assets/equity assets after a company's total assets MINUS liabilities are the valuation of the enterprise. This method is called cost method because it only considers the value of net assets and is generally used in heavy asset industries, so we will see that the valuation of some heavy asset industries is based on the price-to-book ratio. Such listed companies often look at the price-to-book ratio, not the price-earnings ratio.
2. Income method
This is the most widely used valuation method in the A-share market at present, because the purpose of an enterprise is to make profits, and the value of an enterprise comes from its future profitability. If we discount the future profitability (cash flow) of the enterprise to the present, then we will get the valuation or value of the enterprise.
But the disadvantage of this method is that the operation of enterprises is generally unstable. Due to various internal and external factors, it is difficult for us to determine how much profit we will have each year after five years, so this discount is not so "reliable". This valuation method is generally suitable for mature companies that can make stable profits and bring stable cash flow every year. It is time for such enterprises to use the income method.
3. Market rules
The so-called market method is to compare with the enterprises with existing trading cases in the market and determine the value of the evaluation object. For example, in the process of venture capital, the most commonly used method is the market method. For example, we just raised funds with that peer company in the market, their user scale, revenue, profit and so on. The current valuation can be determined by comparison.
For example, there happens to be a company in the market that is in the same trade as yours. He is the industry leader, with a valuation of 1 100 million and a profit of 2 million, and you are the third in the industry. You can compare the two, but the other party is the industry leader and you are the third in the industry, and the profit is only half of the other party's, so your valuation must be 20% off on the basis of 50% off, so it's 430 thousand.