Research and Application of Company Valuation Methods

Abstract

The idea of company valuation originated from Irving Fisher's financial budget theory. The MM theory of American scholars F.Modigliani and Merton H.Miller marks the emergence of valuation theory in the modern sense. This paper mainly studies the theory and application of two company valuation methods—relative valuation method and absolute valuation method. It can be concluded from the research that the essence of valuation methods is the discounted valuation of future cash flows. In the case of stable performance, the price-earnings ratio P/E relative valuation method is the most intuitive. At various stages of development, the same company uses various valuation methodologies. The valuation approach should be modified in accordance with the company's current position. In addition, there is some subjectivity involved in valuing something because there is no universally accepted method. The significance of this research lies in valuation methods have their own advantages and limitations, and they have different emphases. Multiple valuation methods can be used for a comprehensive comparison.