The Study Of The Developing Company' Valuation

The research object of this paper is developing companies, which either lack history data or suffer negative profits currently. The paper construes the main roadblocks in evaluation of developing companies by demonstration, case analysis and models under the background of conventional company value theory. The paper also advances several corresponding countermeasures after introducing management option as a part of whole company value considering the market value of comparable companies.The paper is developed in four parts. Chapter One retrospects the classical company value theory. This part begins with two modes for the orientation of company value: shareholder value orientation and the value orientation of people with related interest. Then it reviews company value theory in three phases, static, semi-dynamic and dynamic, and indicates the problems of early dynamic company value theory and recent development Lastly this part illuminates the practical meaning and theory base of developing company's value. Chapter Two analyzes the classical company evaluation methods comparatively. This part firstly introduces five kinds of evaluation methods, including book value, goodwill value, income statement, cash flow discounting and value creation, and then compares and analyzes the advantages and disadvantages of each one. Chapter Three indicates the difficulty in evaluation of developing company. This part modifies classical evaluation theory aiming at unforeseeable factors in evaluation of developing companies, such as expected growth rate, sustainable operating margin, reinvestment needs and equity value, including companies without historical data or those with negative profits. Chapter Four establishes a multi-factor evaluation model based on equity book value and profits of developing companies. In this model, company value is composed of recursion value and reorganization value so that to avoid three shortcomings: the non-applicability of negative bases of reference, the problems with accounting for company profitability during evaluation process and the non-consideration of management's option to reorganize the company. Compared to previous models, the multi-factor model is theoretically advantageous not only in valuing companies that have an expected RoE much higher than the peer group average but also in valuing companies with low or negative profits.