Application Of Free Cash Flow To The Valuation Of Changchun Ouya Group

As the rapid development of China’s socialist market economy and the constant improvement of capital market system, the value assessment of enterprises on financial management, foreign investment, mergers and acquisitions are being applied more and more frequently. How to evaluate the value of company is a difficult spot in capital market and also a hot spot in academic circle. Evaluation results for the different users have different purposes. Enterprise managers can understand the intrinsic value of the enterprise, through the enterprise value evaluation to judge the feasibility decision. Investors analyze the intrinsic value of the enterprise, to deepen understanding of the enterprise, judge feasibility of investment. Such as enterprise merger, purchase, restructuring associated economic activity involves the assessment of enterprise value. Focus is to choose what kind of method to evaluate enterprise value.Free cash flow method is the most widely used international, the well-established theoretical value evaluation method, application of this method has a big advantage. By learning views on foreign and domestic well-known professor of classical literature, we can understand the condition and significance of this method. This article explains the concept of free cash flow method. Two elements of free cash flow method are free cash flow and the discount rate. We should be able to estimate the enterprise’s future cash flow and the related discount rate. In addition, the article compares the free cash flow method and dividend discount method. Deeper clarify the advantages of free cash flow method and applicability.In this paper, Changchun Ouya Group as a case study on the feasibility of free cash flow method. We mainly analyze competition in the industry, operating status, financial indicators. Analysis results provide evidence on application of free cash flow method in Changchun Ouya Group. Based on free cash flow method in the valuation process, Changchun Ouya Group’s stages of development will be divided into the forecast period and stable period. According to the historical operation, we can predict future cash flows and calculate the weighted average cost of capital based on the cost of equity capital and debt capital to determine the discount rate. Finally, we can calculate the enterprise value of Changchun Ouya Group and compare with the stock market prices. From the analysis results, the valuation results of Changchun Ouya Group objectively reflect the ability of future cash flows. The results verify the rationality of free cash flow method. Free cash flow method is easy to obtain its data, process standard unity, verify operability and other features, will gradually show superiority.