a) Cash payment The buyer pays cash to obtain the control power of the newly established foreign invested enterprises. This is the most widely used M&A payment method in China nowadays and it’s also the simplest one. b) Stock payment The buyer pays its newly issued stocks to obtain the control power of the newly established foreign […]
Under this method, the liquidation value of each asset of the company is added together to arrive the liquidation value of the company. This method is only applicable to circumstances where the objective of the merged company is to sell its asset.
Under this method the value of the company is the cost to incur for rebuilding the company under current condition. There are threes methods to calculate the value: a) Replacement Cost Method: Replacement Value = Quantity of the material, labor and expenses incurred * Prevailing price b) Commodity Index Method: Replacement Value = Original value […]
Book Value Method relies on the accounting record, which equals to total asset minus total liability. The advantage of this method is that it’s reliable and easy to calculate and understand. The drawback of this method is that it ignores the fluctuation of asset price and future profit-making capability of the company.
The concept and steps of the Comparable Transaction Method are similar to those of Comparable Company Method, except that this method uses similar M&A transactions to compare. The disadvantage of the method is that sometimes it’s difficult to find out similar M&A transactions.
Following steps need to follow: a)Choose a set of sample company which is similar to the target company b)Determine Valuation Index which are generally Net Income, Dividend, Cash Flow, or Book Value of Asset etc. c)Calculate valuation Ratio, which can be one of the following Stock Price / Earnings per share Market Value / Equity […]
The calculation method and steps of the Discounted Income Method are similar to those of DCF model, except that discounted item is income. The advantage of this model is that it can objectively reflect the company’s performance. However, the disadvantages are that Income can be easily manipulated and it does not take into account the […]
The calculation method and steps of the Discounted Dividend Method are similar to those of DCF model, except that discounted item is the dividend. Since Chinese companies do not distribute dividend frequently, this method is not applicable in China.
There are two methods to determine the discount rate in DCF model: a) Weighted Average Capital Cost: K=We*Ke+(1-We)*Kd*(1-t) Where, K——weighted average capital cost of the company Ke——capital cost of equity Kd——capital cost of long-term debt before tax We——the ratio of equity to total asset t —— income tax rate b) CAPM Ke=Kf+β*(Km-Kf) Where, β—— market risk […]
The calculation formula is:
V=∑CFt/(1+i)
