Relative valuation method is simple and easy to understand, and it is also the most widely used valuation method for investors. In the relative valuation method, commonly used indicators are P/E ratio, P/B ratio, EV/EBITDA multiple and so on. Their calculation formula is as follows:

P/E ratio = price per share/earnings per share

P/B ratio = price per share/net assets per share

EV/EBITDA= enterprise value/profit before interest, tax, depreciation and amortization

(Where: the enterprise value is the sum of the total market value of the company's stock and the value of interest-bearing debt minus cash and short-term investments)

2. Absolute valuation method

Dividend discount model and free cash flow discount model adopt income capitalization pricing method. By forecasting the future dividend or free cash flow of the company and discounting it, the intrinsic value of the company's stock can be obtained. The most general form of dividend discount model is as follows:

Where V represents the intrinsic value of the stock, D 1 represents the dividend available at the end of the first year, D2 represents the dividend available at the end of the second year, and so on, and K represents the return on capital/discount rate.

3. Cash flow discount by income method

This is a relatively mature valuation method. By forecasting the company's future free cash flow and capital cost, the company's future free cash flow is discounted, and the company value is the present value of future cash flow. The calculation formula is as follows: (where, CFn: annual forecast free cash flow; R: discount rate or cost of capital)

Discount rate is the most effective way to deal with forecasting risk, because the forecast cash flow of start-up companies has great uncertainty and its discount rate is much higher than that of mature companies. The capital cost of a startup seeking seed capital may be between 50%- 100%, 40%-60% for an early startup and 30%-50% for a late startup. In contrast, the capital cost of companies with mature operating records is between 10%-25%.

Company valuation is the premise of investment, financing and trading. When an investment institution injects a sum of money into an enterprise, the rights it should have first depend on the value of the enterprise.