The Valuation Of A Pharmaceutical Enterprises Based On Monte Carlo Simulation

With the development of China's economy,the improvement of people's living standards,the trend of aging population and people are paying more attention to personal health issues than in the past,healthcare is gradually becoming one of the highest growing industries in China,and financing and mergers and acquisitions of medical enterprises in China's capital market have become more active.As pharmaceutical companies face higher risks in production and operation,these uncertainties will have a greater impact on the valuation results of companies.Traditional free cash flow discount(DCF)models rely on evaluators to make point estimates of risk variables based on subjective expectations of future,these point estimates cannot quantify the uncertainty of the variables in the valuation process,the valuation result is also a point estimate which may be distorted.The effect of using scenario analysis and other methods to improve the accuracy of evaluation results is limited.In order to solve the difficulties encountered in the valuation of pharmaceutical companies with high production and operation risks.Firstly,we combined Monte Carlo simulation with discounted free cash flow model and established a modified DCF model.Secondly,through the sensitivity analysis of risk variables,the main risk variables that have a significant impact in the valuation process are screened out.Thirdly,by analyzing and the probability distribution of the main risk variables,using K-S for hypothesis testing and the advantages of Monte Carlo simulation to simulate the characteristics of constant fluctuations of risk variables in the real environment,the uncertainty of the production and operation of pharmaceutical companies is quantified.Finally,we use Monte Carlo simulation to estimate the value of the company.The results of the company's valuation are presented in the form of probability,which is more accurate,scientific and reasonable and contain the uncertainty in the operating process of the company.Scientific and reasonable valuation is the basis for company to use capital markets to achieve development.It is also the process of realizing the company's value,which is beneficial to the management's goal of maximizing shareholder value through operation management.