Application Of The Income Approach In Liquor Business Valuation

Business Valuation is a product of the modern market economy, and the emergence and development of which was adapted to the frequent occurrence of corporate restructuring, listed companies, mergers, transnational business and other economic activities needs. As China’s capital market efficiency and standardization has been further enhanced, to maximize shareholder wealth, value management and value investment philosophy and approach is increasingly being respected, business valuation problem is widespread concern. How to assess the value of listed companies, which is not only an important issue that the securities industry long-term exploration, it is the question investors are most concerned about.Liquor is Chinese traditional distilled liquor, with unique technology and a long history, become one of six world famous distilled liquor. Our long history of wine culture gives a unique position to the liquor industry. Liquor industry as China’s traditional industries, has a profound impact on the development of the national economy. The valuation of the liquor business, has an important impact on the liquor industry market development and effective investment; research on the application of the income approach in liquor business valuation, will help improve the industry evaluation system.Business valuation methods are market approach, income approach, cost approach and real options method. Where the income approach mainly includes discounted cash flow method, Economic Value Added and the income capitalization method. This paper intends to use the DCF method and the EVA model in assessment of Luzhou value respectively, the valuation date as December31,2012. The data mainly from Luzhou2008-2012Annual Report and financial statements of the third quarter of2013.Statements range is selected consolidated financial statements, the preparation of the report is the basis of GAAP. By comparing these two methods of analysis, intended to deepen the understanding and using of the theory and methods, and draw relevant conclusions. EVA compared to the DCF has its advantages:as a true reflection of the value created by companies, to reduce the impact of accounting distortion, can be calculated to increase the value of a single year, and can be applied to specific industries. Of view the results calculated by the article, DCF calculated price of22.9yuan per share, and EVA method calculatedl8.07yuan per share, while Luzhou2013stock price average at around17.5yuan per share. Apparently, the latter calculated value closer. It also indicates that the EVA has certain advantages in the business valuation assessment compared to DCF.Here are the main contents and framework of the article:The first part is an introduction. Mainly on the research background, purpose and significance.of this paper, research ideas and frame works.The second part is the enterprise value and business valuation theory outlined, as well as comparative analysis of the assumptions and the applicable circumstances of business valuation methods-market approach、income approach、cost approach and real options method.The third part talks about the liquor industry and business case. Including the liquor industry trend and development, the future trend analysis; analysis of Luzhou corporate profiles, financial condition, operating status.The fourth part is based on the DCF method to assess the value of Luzhou case:including enterprise development stage analysis, future cash flow projections, the discount rate determination, and thus the analysis calculated assessment.The fifth part is based on the EVA method in Luzhou enterprise value assessment, including an overview of EVA theory and EVA method, the process of forecasting and adjustments, and finally calculate the corresponding results.The last part is about conclusions and implications for the assessment.Comparative analysis and summary of the advantages and disadvantages of DCF method and the discounted cash flow method, drawn a conclusions that EVA is more scientific than DCF in companies valuation; simultaneously illustrate the problem encountered in the evaluation process, and considerations and suggestions for improvement.