| After 2003,the reform in productivity of China's central enterprises became very slow,and there was a serious overcapacity in steel and other traditional industries.The losses of major listed steel companies reached 80%.In 2015,in order to change this situation,China announced that it will carry out supply-side reforms and capacity reduction,it will upgrade and optimiz industrial chain in steel and other traditional industries.After more than two years of efforts to reduce production capacity,the entire industry chain of the iron and steel industry has achieved transformation and upgrading.The iron and steel industry has produced a total of 170 million tons of capacity,and the steel price has continued to rise due to the improved relationgship between supply and demand.As a result,the performance of listed companies in the steel industry has been greatly improved.Major listed steel companies have successfully turned losses into profits.The value of each steel company has changed from overvalued to undervalued.Therefore,the value of the assets of major listed steel companies needs reassessed.Therefore,in the context of capacity reduction,this paper tries to explore how to evaluate steel companies' values.This article first introduces the related theories of enterprise value assessment,the three traditional methods of assessment are income method,cost method and market method.According to the particularity of steel enterprise,this paper finally selected the free cash flow discount method,the price-earnings ratio method,and the market-sales rate method to evaluate Bayi Steel company.The free cash flow discount model can fully reflect the future profitability of the company's assets,reflects the time value,and can also fully reflect the integrity of the company's value;the price-earnings ratio method fully reflects the relationship between the company's market price and net profit.The market-sales rate law well reflects the relationship between the company's total market value and operating income.These three methods are very reliable assessment methods in the valuation of steel enterprises in China.Then this article briefly introduced the development status and planning of Bayi Iron and Steel,analyzed the progress of capacity reduction of the steel industry in Xinjiang Province.Through the historical trend of the steel industry capacity in Xinjiang Province,the “13th Five-year Plan” of Xinjiang steel industry,the detailed descriptions of the five aspects of the capacity elimination target,the de-capacity situation of steel industry in various regions,the de-capacity situation of iron and steel enterprises in Xinjiang Province,and the suspension of construction projects in Xinjiang region,it summed up that the iron and steel industry production capacity of Xinjiang Province decreased from 25.3 million tons in 2015 to 20.5 million tons in 2018,.The net profit of Bayi Steel,the largest iron and steel company in Xinjiang Province,rose from 2.509 billion yuan in 2015 to 1.168 billion yuan in 2017.We can see that the capacity elimination policy has greatly increased the value of steel company.Finally,based on the historical financial data and the future development plan of this company,this article predict the financial data in next five years,such as operating income,operating costs,financial expenses,management fees,investment expenses,depreciation,amortization,and working capital.After predicting the company's financial data in the next five years,this paper uses the free cash flow discount method,the price-earnings ratio method,and the market-sales rate respectively to evaluate the corporate value of Bayi Iron & Steel Company.The results of the value were 17.709 billion yuan,12.101 billion yuan and 13.541 billion yuan.The three evaluation methods yielded different evaluation results.In particular,the results obtained by the free cash flow discount method and the other two methods differ greatly.First,because the free cash flow discount method focuses on the future development potential of the company,while the price-earnings ratio method and the market-sales ratio method focus on the current development status of the company.Second,the steel industry is still in the stage of de-capacity.The value of the entire steel industry may be generally underestimated.Therefore,the valuation results of the P/E method and the P/S method will be lower than those derived from the free cash flow discount method.If the corporate value of the steel industry is generally underestimated,then the value of the firm derived using the absolute valuation method will tend to be greater than the result of using the relative valuation method.Third,the forecast value of the future weighted average cost of capital(WACC)and perpetual growth rate for Bayi Steel company is 7.58% and 2%.If the future weighted average cost of capital(WACC)of the company is underestimated or the perpetual growth rate is overestimated,then the assessment results obtained using the free cash flow discount method or other absolute valuation method will be higher than the actual value of the company.This article proposes an improved method for this defect of the free cash flow discount model,that is sensitivity analysis about the result of free cash flow discount method.The firm's weighted average cost of capital(WACC)and perpetual growth rate are used as independent variables x and y,and the company's overall evaluation value is used as the dependent variable z.The dependent variable will change as the two independent variables change.Using the matlab tool to build a three-dimensional model diagram and draw the results of the sensitivity analysis.If the company's operating results are lower than expected,the company's valuation will be reduced to 15.523 billion yuan when the perpetual growth rate is reduced to 1%.If the cost of capital changes due to changes in the market environment,we assume the weighted average cost of capital(WACC)increase to 10%,the company's valuation will be reduced to 12.585 billion yuan.On the contrary,if other conditions remain unchanged,the sustainable growth rate increase to 3%,the value of company will reach 20.849 billion yuan;if the WACC is reduced to 6%,the value of company will increase to 24.56 billion yuan.yuan.Therefore,under the same circumstances,if the enterprise-weighted cost of capital(WACC)increases or the perpetual growth rate decreases,the result of the free cash flow discounting method tends to be the results of the price-earnings ratio method and the market-sales rate method.Therefore,when we assess the value of steel companies,first we should consider the local iron and steel production capacity and the impact of capacity on the value of the company;secondly,we must choose the assessment method carefully due to the characteristics of the steel industry;finally,When using the absolute valuation method to evaluate the value of steel companies,we need add to the sensitivity analysis,the assessment results will becaome more scientific,objective,and applicable. |
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