Research On Valuation Of Biomedical Enterprises Based On Improved FCFF And B-S Models

In recent years,people’s health awareness has significantly improved,and the outbreak of the COVID-19 pandemic in 2020 has made the biopharmaceutical industry an attractive sector for investors.This has brought numerous opportunities and challenges to the industry.In this context,it is essential to find a reasonable approach to value biopharmaceutical companies.Traditional valuation methods do not fully account for the unique value composition of these enterprises.Consequently,developing a valuation method that suits the characteristics of biopharmaceutical companies has become a prominent research topic.This article initially examines the characteristics and factors influencing the value of biopharmaceutical companies.It then briefly explores the limitations of traditional valuation methods when assessing these companies based on their value composition.Considering the factors that affect the value of biopharmaceutical companies,the paper posits that their overall value should comprise both existing and potential value.The existing value is embodied in the company’s listed products,which can be assessed using the Free Cash Flow to Firm(FCFF)model,while the 5P valuation method enhances the prediction of operating income.The potential value,represented by the company’s products in the R&D stage,constitutes an option value.The Black-Scholes(B-S)model in the real option method assesses this value,with the 5P valuation method improving the underlying assets.Fuzzy mathematics are also employed to fuzzify the two variables of the B-S model’s underlying assets and exercise price,mitigating issues related to overly absolute model values.Article features Xiamen Tebao Biomedical Engineering Company,a representative company in the biopharmaceutical industry.Evaluate the value of Xiamen Tebao Biomedical Engineering Company using various methods,including the 5P valuation method to enhance the FCFF and B-S models,the 5P valuation method combined with fuzzy mathematics to refine the FCFF and B-S models,and the traditional FCFF model.The results of these three methods are then compared and analyzed.By constructing models and analyzing case studies,this article refines the FCFF and B-S models to better suit the characteristics of biopharmaceutical companies.It validates the model’s effectiveness for valuing biopharmaceutical companies,enriches the available assessment methods of this kind of enterprises and provides a certain reference for the selection of valuation methods.