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Selection on target enterprise in mergers and acquisitions and valuation methods

Author: FanRong From: www.yourpaper.net Posted: 2010-05-31 22:15:53 Read:
[Keywords] acquisition target enterprise choice of valuation methods
[Abstract] current merger market mainstream, mainly of gratuitous transfer of state-owned enterprises for mergers and state-owned assets in state-owned units.How to choose M & A, what kind of method selection has become an important subject of investment.Therefore, it is very important to choose the merged enterprise and its value assessment of these two aspects.
On the merger market supply and demand relations, due to the operation of state-owned enterprises generally poor, on the verge of bankruptcy large number of enterprises, a serious imbalance between market supply and demand, many enterprises merger will not find buyers.The annexation enterprise has a certain operating space in a merger target selection.At the same time, the enterprise itself is a kind of can be traded in the property market commodity, as the operation of the commodity investors must understand the value of the enterprise.And how to choose M & A, what kind of method selection has become an important subject of investment.
, the merged enterprise was analyzed by
(a) solvency analysis
A detailed study by using specific indicators of solvency, can grasp in general and financial status and operation of enterprises.
L_ liquidity ratio.Is the ratio of current assets divided by current liabilities, it can reflect the short-term debt-paying ability.Generally, 2 is the minimum liquidity ratio production enterprises reasonable, if the target enterprise is lower than this ratio, the goal of enterprise short-term debt too much, at this time, enterprises must analyze the reasons.Because of the target enterprise M & A is the loss of enterprises, the enterprises merger intention can be based on the analysis of the current ratio to consider whether there are sufficient funds in the short term to reimburse the.
2 quick ratio.It is deducted from the inventory portion from the liquidity towel, then divided by the ratio of current liabilities.Usually considered normal quick ratio was 1, lower than the 1 speed ratio is considered low short-term debt-paying ability.This is only the general view, because of the different industry, quick ratio can have very big difference, there is no uniform standard for the quick ratio.The target enterprise which requires enterprises to further the merger, according to the actual circumstances in a specific analysis of specific reasons, so as to avoid misleading to yourself.
3 the rate of assets and liabilities.It is the percentage of total liabilities divided by total assets.It can explain the total assets in what proportion is financing through debt, can also measure the merger and acquisition of enterprises to protect the interests of creditors in the liquidation of the extent of.The rate of assets and liabilities to measure enterprise mergers and acquisitions, mergers will be to understand the enterprise through the cost of capital.At the same time, enterprises can also be seen through the analysis of existing problems of target enterprise business activities.If the target enterprise debt beyond the psychological level, creditors, enterprises will not be able to borrow.If the enterprise is not debt, or the debt ratio is very small, that companies hesitate to press forward, the lack of confidence in the future, ability of business activities using the creditor capital of the poor, which provides the data for the future of the target enterprises is to improve.
(two) the analysis of profitability
Profitability is the ability of enterprise profit.In order to correctly evaluate the enterprise M & A, it is necessary to the existing enterprise profitability and level of risk analysis and adjustment.
Analysis of 1 of the existing level of profitability and risk.Analysis is mainly based on the adjusted financial data directly.Corporate profitability indicators include profitability, profitability of assets and net assets profit ability of three major categories of indicators.These different profitability indicators reveal from different aspects of the current profitability.Enterprise risk level can be decomposed into business risk and financial risk in two categories, enterprise risk in addition to profitability can affect business uncertainty, also affect the solvency of enterprises, namely the repayment ability.This requires enterprises to analyze the target enterprise M & A, adjust according to the result of.
Profitability and level of risk to the M & A adjustment 2.Mainly according to the composition, the reality of the enterprises profitability management efficiency and management level, and the external environment of enterprises to carry out, this is because they can reveal the variation trend of enterprise future profitability and level of risk to a great extent.Grasp of these circumstances can make appropriate adjustments to the existing enterprise profitability and level of risk, in order to obtain the required to estimate the value of enterprise future profitability and level of risk.In the analysis of financial statements, especially according to the level of risk adjustment to the enterprise profit ability, full attention should be paid to the society to the profitability and level of risk attitude, network society toward profitability and level of risk attitude will influence on the relationship between supply and demand in the capital market and business environment, and affect the value and the price of a business.
two, the value of the target enterprise evaluation method
The form of M & a strategy reflects the acquisition of M & a business in a particular situation, and therefore the actual performance of M & a towel is often differ in thousands of ways.While the merger of different forms, will have different requirements on the valuation methods of target enterprise.This requires the acquisition of enterprises should be accurate valuation of the target enterprise according to the method of reasonable selection of specific circumstances, in order to ensure the acquisition of the success of the transaction.
(a) the discounted cash flow method
Discounted cash flow analysis method is one of the most effective, the most basic valuation method, is to use the present value of future cash flows expected a series of enterprise target for a period of time at a discount rate and the initial cash investment (i.e. merger expenses) compared.If the present value is greater than the amount of investment, net present value equal to or greater than zero, can think this price is favorable to the acquirer; if the net present value is less than zero, is not acceptable to the buyer.When choosing the discount rate to make the NPV equals zero, the discount rate is the internal rate of return.The economic meaning of internal revenue and calculation of the net present value of the discount rate difference between the two, internal rate of return is the highest level of return reflecting the acquirer future can be, if the acquisition of the level of income satisfaction, the merger is feasible, economically or otherwise, is not feasible; and the discount rate is the randomness, the discount rate HISTEP, discounted value is small; the discount rate was low, the present discounted value of the larger.In the use of this method, to determine the future cash flows include what content, and then estimate the future cash flow, this can be done by estimating future earnings growth rate; second is to determine the appropriate discount rate.
Minor adjustments to the discount rate are likely to affect the merger analysis results, so to determine the discount rate should be careful.Method for determining the capitalization rate is: first determine a benchmark discount rate, and then consider the risk factors will increase to some extent.To determine the benchmark discount rate generally has four methods: one is the choice of the weighted capital existing enterprise M & A (debt and equity) cost rate as the benchmark interest rate, then according to the new project due income growth rate will be the benchmark discount rate appropriate to fine-tune; -- is the choice of M & a business history of the return on assets as the benchmark discount rate, then according to the project due to the growth rate, the benchmark discount rate appropriate upward adjustment; three is the use of estimates of future and the expected interest rate as the benchmark discount rate, then according to the industry, enterprises and the financial structure risk factors related to the appropriate upward adjustment; the four is based on published data is estimated by using the weighted average cost of capital the enterprises in the same industry rate value as the benchmark discount rate, then according to the project's growth and risk factors in proper trim up.
(two) the price-earnings ratio method
Price-earnings ratio (price / earnings ratio) is reflected in the current stock price, the profit ability, it is the digital expression of P / E.According to the city profit calculation formula should be the price of M & a:
The acquisition price = (P / E) pre-tax or after-tax income * target enterprise.
The EBIT (EBIT) or the net profit after tax (NPAT) numbers can be obtained from the income statement.EBIT is not consider financing and financial structure of the company's operating profitability, while the NPAT financing and financial structure and other factors are taken into account.
The profits of the company and can be expressed in five different levels according to different criteria: one is based on the recent profit; two is based on the average profit; three is the acquiring company's capital return ratio can reflect the growth level of profitability based on: four is based on the expected profit; five is the acquiring company the required rate of return on capital based on.
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