The Research Of Pharmaceutical Companies' Valuation Based On Residual Income Model

With the continuous development of market economy and financial industry in China in recent years,people pay more and more attention to the enterprise value assessment.It is mainly due to following two reasons.The first one is out of investment considerations.Judging from the current situation of the investment environment,it is not too long since the securities market has developed in our country and the operating mechanism is not perfect.There is a big bubble in the stock market.Therefore,it is very important for investors to evaluate the internal value of companies.Only by getting an accurate understanding of the value of an enterprise can investors make right decisions to gain profits.Only in this way can our securities market develop healthily.The second reason is out of management consideration.For the enterprise manager,maximizing the value of the enterprise is one of the goals of the enterprise management.Enterprise value assessment helps managers make the right decisions by better understanding the strengths and weaknesses of the organization and the factors that drive the value of the organization.Thus,how to effectively evaluate the value of the enterprise becomes very important.In order to solve the problems of the aging population,the accelerated urbanization and the difficulty of quality medical services,the government has deepened the reform of the medical care and health service system and promulgated numerous medical policies.From this we can tell that the pharmaceutical industry will be heavily promoted and attract more attention in the future.The key features of pharmaceutical industry include high barriers,long cycle,high input,and high return.The pharmaceutical industry needs continuous development and it hardly has the mature stage in its life cycle.The traditional enterprise value assessment model may not reflect the intrinsic value of the pharmaceutical companies correctly.Therefore,it is necessary to find a suitable enterprise value assessment model for pharmaceutical industry.The mainstream methods of enterprises value evaluation include relative valuation method and absolute valuation method.Residual income valuation model is one of the absolute valuation method.Compared with other valuation models,the residual income model makes good use of the accounting information of companies directly and can reduce the subjectivity,improve the accuracy of the results,and understand the driving factor of the enterprise's value.This paper chooses Zhejiang Huahai Pharmaceutical Co.,Ltd.(“Huahai Pharmaceutical”),one of the leading pharmaceutical companies in our country,as a research case.Through the introduction of the advantages and disadvantages of the mainstream assessment methods,the detailed description of the residual income model,and the internal and external environment analysis of Huahai Pahrmaceutical,this paper choose the residual income model to evaluate the company's value.In addition,according to the theoretical viewpoint of previous scholars,this paper adjusts the model by introducing the DuPont analysis method and the P/B ratio to improve the shortcomings of the model itself.The adjusted residual income model can predict the residual income more directly and simply,solve the problem of infinite summation,and has strong operability.Finally,this paper conducts a sensitivity analysis of the evaluation results and calculates the enterprise value from 2007 to 2016 using the unadjusted and adjusted evaluation model,and verifies the rationality and superiority of the adjusted model by using the comparison method,the goodness of fit test,the student's t test and the Wilcoxon's sign rank test.What's more,this paper also selected 15 pharmaceutical companies as the samples to further test the applicability of the adjusted model to the pharmaceutical industry.Although the residual income valuation model has been modified,due to limited capacity and data,there are still some shortcomings for the research conducted in this paper.For example,it is unable to predict the P/B accurately and does not do more research on non-accounting information.All these deficiencies have an impact on the accuracy of the assessment results.