Valuation Of Faw Car Co., Ltd. Base On Residual Income Model

The objective of modern financial management has turned into enterprise value maximization from profit maximization gradually. Securities investors' idea has gradually turned into value investment idea too. Therefore, how to valuate the intrinsic value for the enterprise properly has become more and more important. FAW Car Co., Ltd. is a leading enterprise in the automobile plate of domestic stock market. The management board and the stock investors are highly concerned about the intrinsic value of FAW Car Co., Ltd.This dissertation is a study on valuation of intrinsic value of FAW Car Co., Ltd. We firstly analyzed and compared the main enterprise valuation methods. Then the Residual Operating Income Model (ROIM) which is the improved form of Residual Income Model (RIM) has been selected as the enterprise valuation method of FAW Car Co., Ltd. And we also detailed analyzed the theory and valuation's solutions. Then we established the application process of six steps. On this basis, the intrinsic value of FAW Car Co., Ltd. has been valuated.The first step, the ROIM's application premise has been verified. The conclusion is that FAW Car Co., Ltd. will full meet the ROIM's application premise after the financial reports are adjusted. The second step, the financial reports of FAW Car Co., Ltd. from 2004 to 2008 have been adjusted in order to meet the ROIM's application premise and also provide reference for the financial analysis and estimation in the fourth step. The third step, business analysis of FAW Car Co., Ltd. has been conducted in order to provide strong support for the financial analysis and estimation in the fourth step. The fourth step, base on the business analysis and the reference of the adjusted financial reports, we reasonable estimated the future operating performances of FAW Car Co., Ltd. and then obtained the predictive value of relevant parameters. The fifth step, on the predictive value of relevant parameters basis, we can calculated that the firm's intrinsic value in the certain point of time was 20,010.93 million Yuan. The equity's intrinsic value was equal to the firm's intrinsic value because the net financial liability in the above point of time was equal to 0. And the intrinsic value per share was 12.30 Yuan. The market price per share was 7.18 Yuan, so it could be concluded that the market undervalued the value of FAW Car Co., Ltd. in the above point of time. The sixth step, according to the sensitivity analysis of the valuation result, we could know the changing of the intrinsic value of FAW Car Co., Ltd. when the value of various parameters changed.According to the study by this dissertation, it could provide reference for the value management by the managers of FAW Car Co., Ltd. and provide reference for the decision making by the stock investors. It could also provide a certain help for the valuation of other automobile corporations or even other listed corporations.