Enterprise value is realized by maintaining strong competitiveness in the market and realizing sustainable development. The value of an enterprise is reflected in its future economic profitability. Enterprise value evaluation is to analyze and measure the fair market value of enterprises through scientific evaluation methods. Compared with the theoretical system of enterprise value, there are various methods of value evaluation in practice. When evaluating the same enterprise, different evaluation procedures and methods often lead to different results. So, what are the valuation methods and what are their characteristics? At present, in the practice of actual value evaluation, there are three main evaluation methods: income method, market method and cost method.

(1) Income method is a method to estimate the value of assets by discounting or capitalization according to the expected future income of assets. The segmented discounted cash flow model is the most theoretical financial evaluation method and has been widely used in practice. The evaluation idea is to divide the future cash flow of the enterprise into two sections, the first section is from now to the next few years, and the second section is from a few years to infinity. The division of the first phase and the second phase is based on the transition of cash flow from growth period to stable period. The cash flow of the first phase of the enterprise is increasing constantly, so it needs to be discounted year by year. In the later period, the cash flow of enterprises entered a stable development trend. According to the specific situation, the enterprise assumes that it changes according to a certain law, discounts the cash flow of the enterprise during the continuous operation period according to the changing law of cash flow, and adds the discounted cash flow values of the two enterprises before and after to get the evaluation value of the enterprise. The main steps of applying this method are as follows:

① Forecast of future cash flow of enterprises. Cash flow here mainly refers to free cash flow, which is the object of enterprise value measurement, and mainly refers to the amount of cash that enterprises can freely control at present. Can be expressed as:

Free cash flow = operating income-cash operating cost-income tax-capital expenditure-net increase of working capital = earnings before interest and tax+depreciation-income tax-capital expenditure-net increase of working capital.

Or: fcf = ST- 1 (1+gt)? Pt( 1-T)-(St-St- 1)？ (feet+feet)

Among them:

FCF: cash flow;

T: a certain year;

S: annual sales;

G: annual growth rate of sales;

P: sales profit rate;

T: income tax rate;

F: for every increase in sales 1 unit, increase investment in fixed assets;

W: Additional working capital investment required for each increase in sales 1 unit.

The general method to predict the late cash flow of an enterprise is to find out the changing trend of the enterprise's income on the basis of calculating the early cash flow, and predict the changing trend of the enterprise's future cash flow by adopting assumptions. The commonly used assumption is the assumption of maintaining and stabilizing growth, assuming that the cash flow of an enterprise will remain at a relatively stable level in the next few years, or assuming that the cash flow of an enterprise will maintain an increasing proportion every year on the basis of a certain income level in the next few years. But no matter what assumptions are adopted, they must be based on the objective reality of the enterprise to ensure the relative rationality and accuracy of the future cash flow forecast of the enterprise.

② Determine the discount rate and capitalization rate of the enterprise. The cash flow determined in the previous step is only a forecast value, and there will be a gap between the actual amount and the forecast value. Therefore, future cash flow and uncertainty are the risks corresponding to cash flow. Therefore, the problem of determining the discount rate can be transformed into the problem of pricing risk. There are two common models:

First: CAPM (Capital Asset Pricing Model)

In the capital asset pricing model, the rate of return on capital, that is, the discount rate of enterprise equity capital, is equal to the risk-free rate of return plus the product of the enterprise's risk degree (β coefficient) and the market average risk rate of return. Its calculation formula is:

r=Rf+(Rm-Rf)×β

Among them:

R is the return on capital;

Rf is risk-free rate of return;

Rm is the average market rate of return;

β is the risk coefficient of the enterprise.

After Rf and Rm are determined, the determination of β value is the key factor. To determine the beta value, we must first know the beta value of the industry where the enterprise is located, and then make corresponding adjustments according to the gap between the average level of the enterprise and the industry.

Second, the weighted average cost of capital model (WACC)

The weighted average cost of capital is the weighted average of different financing costs of enterprises. Because of the complex sources of funds, enterprises often need to raise the required funds in various ways. For example, both equity financing and debt financing are adopted. Therefore, it is necessary to estimate various long-term costs (stocks and bonds) by weighting. The weighted average cost of capital model can be used to calculate the conversion rate. The formula is:

r=∑Ri？ Kiribati

Among them:

R is the weighted average cost of capital;

Ri is the cost of type I individual capital;

Ki is the ratio of type I individual capital to the total capital.

③ Discounting the cash flow of an enterprise with the discount rate can determine the value of the enterprise. An enterprise is valuable because it has the ability to provide future cash flows, and its value is the present value of all future cash flows.