| The development of stock market gradually matured in China. Many investors havereceived very successful investment. The stock intrinsic value has been a hot topicbetween the value investors. Whether using the classic valuation models, empiricalresearch methods or learning from the successful experience of representatives ofinvestment, investors are trying to find the most reasonable and successful approach todirect investment.In this context, starting from the classic residual income model (EBO model), Thisthesis expounds the meaning of this model, and simplifies it to obtain a new PB–ROEmodel. This thesis use method of combining theoretical analysis and empirical research tostudy the relationship between three financial indicators of book value(PB), return onequity (ROE) and growth rate (g), in order to reveal the relationships between stockintrinsic value, profitability and growth. Thus providing a theoretical support and guidancefor the value investment, which is the purpose of this thesis.This thesis analysis residual income model and use empirical research testing ofChina’s listed A shares. The author finally found that the profitability decide the stockintrinsic value, instead of growth. Book value and ROE positive correlation. Thetheoretical analysis indicates that book value and the growth rate is not monotonicrelationship:(i) when the ROE is less than the cost of capital, growth is harmful. Thatmeans when the growth rate becomes larger, but book value smaller;(ii) When the ROE isgreater than the cost of capital, growth is beneficial. When the growth rate increases, bookvalue becomes larger. The impact of growth on the stock intrinsic value can be negative orpositive. If the high cost of corporate funds can only create low levels of remuneration, thegrowth is harmful. This is detrimental to shareholders’ equity. However, The empiricalresults show that book value positively correlated with the growth rate, which differ fromthe results of theoretical analysis. |
