Evaluation Of Enterprise Value Based On Free Cash Flow

As an important organizational form of the economical activities in our society, an enterprise has always been exploring its development objectives since the establishment. It is acknowledged by theoretical and practical fields that the maximization of enterprise value is definitely the target of financial management of enterprise. Therefore, how to evaluate the enterprise value has become a hot topic which has aroused much concern. The paper is to comprehensively study the theory and detailed practical procedures and ways of valuating enterprise value based on free cash flow. From the study of enterprise value based on free cash flow, it is found that this method could also solve similar problems as other evaluation methods, such as enterprise acquisition & re-cognition, investment analysis, performance measurement and others which have become important reasons for people concerned to regularly evaluate enterprise valuation. Furthermore, the value approach based on free cash flow could be one of the methods for managing an enterprise. This valuation method will facilitate the owner of the enterprise and others to understand the history and present conditions of the enterprise, advantages and disadvantages compared with other firms, potential driving forces of enterprise economic value. Therefore, it will clearly point out the development aim of the increase of enterprise value, as well as increase stockholders' long-term interests.This paper gives an overall study on how to evaluate an enterprise value based on free cash flow. It not only combines theory with practice, but also connects normative analysis and qualitative analysis with case study and quantitative analysis. It firstly points out that the motive of the study on evaluation and its great significance, followed by looking back the current situation of the evaluation study. Based on a number of research materials, the article analyses the domestic confirm of the concept of free cash flow, and the theory of the maximization of the enterprise value. Dwelling on the frame of discounting the value of a firm, it provides the practice with the theoretical basis. And it puts the evaluating frame into practical research with case study, mainly in the field of real estate, such as China Vanke Co., Ltd. By studying the audited financial report in recent years, the result of evaluating appears. Finally a conclusion has been drawn and explains cash flow management, improvement of report and the following study of portfolio tactics. The enterprise value equals to the total discount of the free cash flow in the future. Free cash flow discount takes account of not only the sustainable development but also the time value of capital of the enterprise. Furthermore, the process of evaluation can also make increase of enterprise value clear. Therefore it is the best measurement method for evaluation of enterprise value.