Valuation Methodology
Overview
Systematic corporate valuation framework covering absolute valuation (DCF / DDM / SOTP) and relative valuation (PE / PB / EV-EBITDA), including sensitivity-analysis methods and a checklist for identifying valuation traps.
Absolute Valuation Methods
1. DCF (Discounted Cash Flow)
Core formulas:
Enterprise value = Σ FCF_t / (1+WACC)^t + TV / (1+WACC)^n
Equity value = enterprise value - net debt
Per-share value = equity value / total shares outstanding
Detailed steps:
Step 1: Forecast free cash flow (usually 5 years)
FCFF = EBIT × (1-tax rate) + depreciation & amortization - capex - increase in working capital
Simplified version:
FCFF ≈ operating cash flow - capex
| Year | Revenue (100m RMB) | EBIT (100m RMB) | FCFF (100m RMB) | Growth |
|---|---|---|---|---|
| 2026E | 120 | 24 | 18 | +15% |
| 2027E | 138 | 28 | 21 | +15% |
| 2028E | 155 | 31 | 24 | +12% |
| 2029E | 170 | 34 | 26 | +10% |
| 2030E | 182 | 36 | 28 | +7% |
Step 2: Calculate WACC
WACC = E/(D+E) × Ke + D/(D+E) × Kd × (1-T)
Ke (cost of equity) = Rf + β × (Rm - Rf)
- Rf: 10-year government bond yield (a…
