Application Research On Market Approach Valuation In China’s Steel Enterprises

In our country, we usually use cost approach and income approach to assess the enterprise’s valuation, but the cost approach often use the sum of individual assets to evaluate the enterprise’s valuation, then the integrated effect can’t be measured, and it is also unable to grasp the enterprise’s overall sustainable valuation. Also, income approach is too dependent on the expected uncertainties, and it need to reasonably predict the future cash flow and the risk discount rate, thus increasing the subjective randomness. It is especially difficult to value those steel enterprises. As we all know, the steel industry is the typical periodic industry, and it is not easy to predict its future development and income, so the applicability of the income approach is reduced.With the development of our country capital market, the perfecting of our country’s supervision system and information disclosure, it creates the conditions for the application of market approach. By December 31, 2014, the number of listed steel enterprises in our country has reached 74, then the selection of comparable enterprises can be more easily, so it provides a precondition and guarantee to use the market approach to assess the steel enterprise’s valuation. However, the application of the market approach exists three main technology difficulties: the choice of enterprises, the selection value ratio, and the adjustment of the value ratio. In this paper, combined with the characteristics of the steel enterprises, I do a specific analysis of market method’s three difficulties. I think that it should be judged from those six aspects: the enterprises’ scope, profitability, growth capacity, management risk, financial risk and so on to find those comparable companies, and we can use the method of principal component analysis to help us to find those comparable companies. In the selection of the value ratio, the city net rate to assess the valuation of the steel enterprises is the most appropriate. In terms of the adjustment of value ratio, it can use the comprehensive factor’s score results of principal component analysis to adjust the value ratio. Finally, through the relevant cases, I do a specific description of how to use the market method to assess the China’s steel enterprises’ evaluation.