Equity Valuation Research

Equity valuation is the focus of research in the field of Finance. In the past half century, economies in this field proposed several classic theories, and some of them received the Nobel Prize in Economics. The related theories include CAPM model, proposed by Sharp, Linter, and Mossin; MM theorem, proposed by Modigliani and Miller; Efficient Market Theory proposed by Fama; and BS option pricing model proposed b the Black and Scholes. To study the firm pricing from the view of accounting, Williams put forward the origin of ideas by proposing expected dividend discount model, which was enriched in conception with free cash flow hypothesis by Jensen in 1980's. The other two breakthrough papers in the history of theory are from Ohlson(1995) and Felthman&Ohlson(1995), which break a new ground in the field of remaining valuation theory.The paper consists of the following sections:the first chapter is introduction section, which describing the status of domestic and international research of related areas and the research method in this paper. Chapterâ…¡analyses the reconstruction of financial statement from the point of valuation, taking SUNING appliance for example. Chapterâ…¢combines the traditional P/B and P/E valuation method, and obtaining some empirical results. Chapter IV analyzes valuation and pricing in real business using free cash flow model and residual income model, and compared them with traditional P/E and P/E model with which they have the same origin. Chapter V compares the two theories in stock investment:technical analysis and fundamental analysis, and applies valuation theory to the explanation of macroeconomic fluctuations, which is an innovation.This paper reached the conclusions that reconstruction of financial statements may be helpful in reflecting the enterprise value. We conclude from the history that firm valuation at time point is the direction of financial accounting. The fundamentals of firm, both traditional P/B or P/E, free cash flow and residual income model, reflect the long-term stock price rule, and stock price is affected by many factors. It may be a direction of future development to apply microscopic theories to the valuation of the volatility of macroeconomic research.