#今日读书打卡#
The second step, cash flow, how should it be valued?
First of all, the cash flow situation, Feike Electric has not been on the market for a long time, and the cash flow is relatively stable, with a free cash flow of 661 million yuan in 2017
The third step, the discount rate, this key data, how should be selected?
This time, we use the weighted average cost of capital (WACC) to make the forecast.
The cost of investing in the enterprise is divided into equity cost and debt cost, including common stock, preferred stock, bonds and all long-term debt, and the WACC is the cost of capital calculated after weighting the cost of each type of capital. It is expressed by the formula as:
WACC=(E/V）×Re+（D/V）×Rd×(1-Tc)
Thereinto:
Re = Cost of Equity
Rd = Cost of Debt
E = the market value of the company's share capital
D = market value of the company's debt
V = E + D
E/V = Equity as a percentage of total financing
D/V = Debt as a percentage of total financing
Tc = Corporate Tax Rate
Since the source of funds in this case is equity capital, and does not involve preferred shares and debt financing, its debt cost is 0, that is, Rd is 0
As a result, WACC is directly dependent on its cost of equity capital.
The cost of equity capital Re, which in turn can be determined using the Capital Asset Pricing Model (CAPM), which is as follows:
Re=Rf+β(Rm-Rf)。
Thereinto:
RF – Risk-Free Rate of Return;
β – the risk correction coefficient of the investment asset, which represents the sensitivity to changes in the risk of the capital market system (note: although Warren Buffett scoffs at beta, however, it still has some value when valuing);
RM – the average return on investment in the capital market.
Next, we determine the parameters separately: risk-free rate of return, beta, risk-based rate of return.
1) Risk-free rate of return Rf, i.e., an investment with a certain expected rate of return, without the risk of default, we take the five-year treasury bond yield of 3.48% as the value of this parameter;
2) β coefficient, we use the linear regression method, using the return on investment of Feike Electric's securities and the return of the Shanghai Composite Index, and the regression estimate is obtained, with a value of 1.05;
3) Average return on capital (Rm), we take the five-year average return of the Shanghai Composite Index (9.96%) and the five-year average return of the Shanghai and Shenzhen Indices (7.83%).
In this way, we calculate the cost of equity capital Re as 8.05% and 10.28%, so we approximate the WACC value of 8.05% and 10.28%.
Step 4: After the above assumptions are completed, how to calculate the valuation?
According to the above growth rate, the optimistic value is set at 20%, and the conservative value is 10%, and we further divide its development stage into four stages: "high-speed growth period - shift growth period - stable growth stage - sustainable growth stage", and give different growth rates
According to the optimistic growth rate - the first stage: the high-speed growth stage, assuming that the growth rate is A=20%, the time is about 3 years; The second stage: the shift growth period, the growth rate is reduced to 60%*A of the first stage, which is 12%, and the time is about 4 years, and the third stage: the stable growth stage, the growth rate is 6%, and the time is 3 years. After that, the perpetual growth rate is set at 3%
So, the optimistic mix is: 20% growth, 8.05% discount rate, and 3% perpetual growth rate (the long-term level of CPI)
According to the conservative growth rate - the first stage: the high-speed growth stage assumes that the growth rate is A=10%, and the time is about 3 years; The second stage: the shift growth period, the growth rate is reduced to 60%*A of the first stage, which is 6%, and the time is about 4 years, and the third stage: the stable growth stage, the growth rate is 3%, and the time is 3 years. After that, the perpetual growth rate is set at 3%
Therefore, the conservative hypothetical combination: growth rate of 10%, discount rate of 10.28%, sustainable growth of 1%
Based on the above parameters, we calculate that the enterprise value is between 10.7 billion yuan and 29.5 billion yuan, and since its net debt is negligible, the enterprise value is approximately equal to the equity value, corresponding to a static P/E ratio of 13 times to 35 times in 2017
Predict the follow-up and listen to the next breakdown
It does not constitute any investment advice, the stock market is risky, and you need to be cautious when entering the market