The Application Of Free Cash Flow On The Conch Cement Enterprise Value Evaluation

Business valuation,one of the core businesses of assets assessment, provides important empirical evidence and micro-foundation for enterprise development and economic operation analysis of the state. Comparing to value based on asset,relative valuation,EVA and option pricing method, discounted free cash flow not only gives consideration to enterprise’s historical performance and prospects,growth ability,but also effectively avoid strong selection of artificial manipulation of the evaluation indexes(e.g. profit index). It is widely used in business evaluation because it can objectively assess the development status of the enterprise. Based on this,this case adopts discounted free cash flow to do the business evaluation to Conch Cement Company,to study and analyze its future development tendency.This case is divided into four parts. The first one is introduction which mainly includes research background,purpose and significance,document summary, research approach,innovation and shortage. The second part mainly introduces the common methods of business evaluation and focuses on explanation of basic principle, strength and weakness in order to provide foundation for the following case analysis after comparing value based on asset,relative valuation,EVA and option pricing method. The third part is case analysis. At first,it adopts “top-down approach” to make an overview of Conch Cement’s macro environment,current situation and development prospect,self development. Secondly,it describes in detail the business evaluation process of Conch Cement, mainly including division forecast period and follow-up period, forecast period of free cash flow evaluation,estimated depreciation rates and business value estimation. It focuses on explanation of the estimation process of forecast period of free cash flow evaluation including net operating profit after tax, depreciation and amortization,capital expenditures,working capital increase and calculation of free cash flow.The fourth part is conclusion and policy suggestion. It summarizes the research method and conclusion of this case and put forward corresponding policy suggestion after combining the research result.