In the process of company mergers and acquisitions, the determination of the company's value is very critical. It is the basis of the merger and acquisition price. The value of the target company can be divided from low to high according to the purpose of acquiring the company: net asset value, going concern value, synergy value, and strategic value. Company value assessment is the comprehensive use of knowledge and skills in economics, accounting, law and taxation to conduct detailed scientific analysis and assessment of the company's tangible and intangible assets based on a large number of investigations, reviews and analyses. The acquiring company should select a certain level of value of the target company for evaluation based on the current status of the target company and the purpose of the acquisition, based on certain scientific methods and empirically verified rules.

1. Net asset value evaluation methods

The main evaluation methods of net asset value include book value method, replacement cost method and current market price method. Only the first two methods are introduced here.

1. book value method. The company's balance sheet for each fiscal year can best reflect the company's value at a certain point in time. It reveals the resources held by the company, the debts it bears, and the owners' equity in the company. The net value of a company's assets and liabilities is the company's book value. But to assess the true value of a target company, necessary adjustments must be made to various items on the balance sheet. For example, when adjusting asset items, attention should be paid to possible bad debt losses in the company's accounts receivable, exchange losses in the company's foreign trade business, whether the market value of the company's securities is lower than the book value, and whether the depreciation method of fixed assets is reasonable, especially in In terms of intangible assets, the evaluation of patent rights, trademark rights and goodwill is very flexible. When adjusting liability items, it is necessary to examine whether there are unaccounted liabilities, such as employee pensions, accrued expenses, etc., and attention should be paid to whether there are guarantees or liabilities and unapproved taxes, etc. After evaluating the assets and liabilities of the target company, both parties to the merger and acquisition can negotiate on these items item by item to arrive at a company value acceptable to both parties.

2. Current market price method. The current market price method is also called the market method. It uses market research to select one or several companies with similar evaluation objects as reference objects or price standards, analyze and compare the trading conditions of the reference objects, and make comparison and adjustments to determine the value of the company being evaluated. an evaluation method. The theoretical basis of the current market price method is the principle of market substitution. In asset transactions, any buyer will choose assets with high utility and low price. In the evaluation process of the current market price method, the evaluation object and evaluation indicators are first clarified, then the information of the reference object is collected, the reference object is determined by analyzing the data information, and finally the difference between the reference object and the evaluation object and the price difference reflected by the difference are compared. After adjustment, the value of the assessed object is obtained. The prerequisite for applying the current market price method is a fully developed market with active trading. Only when such a market exists can sufficient reference objects be selected from the market for comparison, analysis, and pricing. China is currently strengthening the construction of its capital market. With the continuous development of the capital market, the current market price method will be more widely used in value assessment.

2. Going concern value assessment method

1. Present Value of Income Method. It is a valuation method that uses an appropriate discount rate to discount the company's expected future earnings to the present value on the valuation base date, and uses this to determine the company's value. The principle of the present value of income method is that the acquirer acquires the target company because it considers that the target company can bring benefits to itself. If the company's benefits are large, the acquisition price will be high. Therefore, it is a scientific and reasonable method to determine the value of a company based on the income it can bring. This approach involves an assessment of the target company's expected life span. Life expectancy refers to the number of years from the valuation base date to when the company loses profitability. Companies all have a life cycle. When using the income present value method to evaluate a company's value, the company's economic life must first be judged. If the economic life is estimated to be too long, the company's value will be overestimated; otherwise, the company's value will be underestimated. In Western countries, life expectancy is generally limited to 5 to 10 years.

2. P/E ratio method. The price-to-earnings ratio method is a method of determining the value of a target company based on its earnings and price-to-earnings ratio. The process of applying the price-to-earnings ratio method to evaluate a company's value is as follows.

(1) Check and adjust the recent profit performance of the target company. For example, when examining the company's most recent profit and loss statement, you should consider whether the accounting policies followed by these accounts are consistent and in compliance with national regulations. If necessary, adjust the company's announced profits.

(2) Choose to calculate the company’s valuation income indicator. It is more appropriate to use the average of the company's after-tax profits in the past three years as the valuation income index. In practice, the valuation of a company should also pay more attention to its earnings after mergers and acquisitions. For example, when the acquiring company has a strong advantage in management, the target company can obtain the same rate of return as the acquiring company under effective management after the merger. Then the after-tax profit of the target company after the merger can be calculated based on this as Valuation income indicators will be more guiding for companies and decision-making.

(3) Select the standard price-to-earnings ratio. Generally, the standard price-earning ratios that can be selected include the following: the price-earnings ratio of the target company at the time of the merger, the price-earnings ratio of companies comparable to the target company, the average price-earnings ratio of the industry in which the target company is located, etc. When selecting, you must ensure comparability in terms of risk and growth. The standard price-to-earnings ratio should meet the company's post-merger risk and growth requirements, and should not be just historical data. At the same time, in actual application, the above standard price-earnings ratio must be adjusted based on the expected situation of the target company.

(4) Calculate the company value. The company's value is the product of the valuation earnings indicator and the standard price-to-earnings ratio.

3. Synergy value evaluation method

The main method for evaluating the company's synergy value is the present value method of earnings. The difference from evaluating the going concern value is that when estimating expected income, it is necessary to add the income due to synergy, that is, to calculate and realize the newly increased income and cost savings item by item. Usually after the target company is merged, it will grow abnormally in the first few years due to synergy, and then enter a mature stage, growing at a stable and low rate.

IV. Strategic Value Assessment Method

There is no fixed assessment method for strategic value. When the acquiring company has different strategic purposes for the acquisition, its assessment methods for the value of the target company are also different. . But one thing is the same, that is, if the acquiring company does not conduct mergers and acquisitions, the cost spent to achieve strategic goals through other means is the standard for measuring the strategic value of the target company. For example, if the acquiring company acquires the market occupied by the target company, the strategic value of the target company is mainly the price paid by the acquiring company to occupy the market itself. Another example is that the acquiring company hopes to obtain certain scarce resources owned by the target company (proprietary technology, listed company status, etc.), then the strategic value of the target company is the cost of the acquiring company giving up M&A and instead developing the scarce resources on its own.