Since 2008, Yunxia Huang has been working in the finance department of couple multinational companies. Accumulated more than ten years of experience in financial analysis in air-conditioning industry. She joined the medical industry two years ago and is currently the financial director of a listed medical company in China.
She will defend her Executive Doctorate of Business Administration (EDBA) in September 2023, on the theme ” Free cash flow method for evaluating enterprise value of a biomedical company: analysis of value drivers and creation paths – a case study of Heng Rui Medicine” under the supervision of Professor Marco Heimann, iaelyon School of Management, University of Lyon 3.
Thesis Direction
Pr Marco Heimann
Thesis Title
Free Cash Flow Method for Evaluating Enterprise Value of a Biomedical Company: Analysis of Value Drivers and Creation Paths – A Case Study of Heng Rui Medicine
Abstract
With the active capital market, the maximization of corporate value has increasingly become the focus of shareholders, management, and investors. In the process of mature and standardized operation in various industries, the industry “reshuffles”, and capital transactions such as mergers and acquisitions and equity transfers are in full swing. Investors and management pay more attention to corporate value evaluation methods and corporate value creation paths.
This paper uses the free cash flow method to evaluate the value of the enterprise, and on this basis, analyzes the value driving factors, and then puts forward the path of enterprise value creation for the main sensitive factors of the value driving.
This article starts from the theory, method and research status of enterprise valuation and value driving factors. By comparing and analyzing the ideas and advantages and disadvantages of various valuation methods, it is believed that the free cash discount method is more scientific and applicable. Afterwards, it mainly introduces the principle and defects of the method, and puts forward some improvement suggestions to make the discount rate dynamic. After that, introduced Heng Rui Medicine and the current development of the pharmaceutical manufacturing industry, and analyzed the reasons why the market recognized its corporate value.
Based on the discounted free cash flow model, the paper makes a comprehensive and detailed evaluation of Heng Rui Medicine. Through the analysis of historical operating conditions, financial data and future development trends, it predicts Heng Rui Medicine’s future performance and other related parameters, and calculates free cash flow, to estimate the value of Heng Rui Medicine, and conduct a difference analysis against the market value at the time of evaluation.
Based on the free cash flow method to evaluate enterprise value, this paper combines the evaluation process and relevant parameters of free cash flow to find out the main value drivers related to free cash flow through sensitivity analysis: (1) operating revenue; (2) operating cost (3) administrative expenses; (4) selling expenses; (5) sustained growth rate; (6) R&D expenditure. Based on these value-driven sensitivity factors, the six dilemmas faced by Heng Rui Medicine’s value-driven drivers are analyzed: (1) operating revenue is overly dependent on “generic drug” products; (2) overseas business expansion is slow; (3) procurement cost is high; (4) sales and management expenses remain high; (5) lack of sustainable growth capabilities; (6) R&D risks and costs continue to increase.
Aiming at the main sensitivity factors and value-driven dilemma faced by Heng Rui Medicine, this paper puts forward suggestions for the management of the company: (1) get rid of the dependence on the “generic drug” model; (2) expand the growth space of overseas business (3) self-produced raw materials to reduce procurement costs; (4) control and reduce costs, optimize sales system; (5) optimize quality management and capital structure; (6) reduce costs and improve efficiency in R&D.