Empirical Research on Internet Enterprise Value Evaluation Based on Free Cash Flow

Under the background of the continuous development of the global digital economical model, the research on the valuation of Internet enterprises has increasingly attracted scholars' attention. With the drastic change of the Internet industry, the problem of the inability to provide data support for research due to insufficient corporate financial data has gradually been resolved. The discounted free cash flow method is currently the most extensive and theoretically mature method in the field of enterprise value assessment. Its practicability has not been fully proved in the Internet field. The paper uses the free cash flow discount model to estimate the sample enterprise value--taking Jinshan Software as an example, and proves that it is feasible and predictive while using Internet companies as research objects. Keywords—Enterprise value assessment; Free cash flow; Discount model; Jinshan Software I. RESEARCH BACKGROUND AND LITERATURE REVIEW A. Research background Along with the continuous development of the Internet industry, Internet companies have a large gap with traditional enterprises in terms of operation mode, growth mode and profit stage model. Compared with the traditional enterprise Internet companies, the proportion of physical assets is relatively low, the proportion of software assets is relatively high, and the previous capital investment is high and the investment risk is high. From the perspective of development model, the development of traditional enterprises has gradually grown from a small-scale enterprise to a large company, and it can be profitable from the beginning. Internet companies need a large amount of capital support in the early stage, and accumulate customer base through free or low-cost services. The market pattern is stable after generating revenue, such as Didi taxi, Meituan and shared bicycle market. Under the huge gap between Internet-based enterprises and traditional enterprises, it is worthwhile to explore whether the valuation model of traditional enterprise value is applicable to Internet enterprise value assessment. B. Literature review In the literature, the research on the relationship between free cash flow and corporate value of enterprises focuses on traditional enterprises or enterprises related to traditional industries. For example, Rubei, Nanjing University of Finance and Economics, uses the free cash flow discount model to study the value of enterprises [1]. Han Xingguo, School of Economics and Management, Inner Mongolia University of Science and Technology, takes Yili as the research object and evaluates the value of the company through the free cash flow discount model [2]. Shanghai University of International Business and Economics School of Finance and Management, Geng Shangzhou, Wang Yazhen, Cai Yuxin, based on the user traffic estimation model and the Metcalfe law proposed by Robert Metcalf for the network value analysis, evaluated the ecological value of LeEco [3]. Based on the value creation perspective, Professor Xuan Xiao and Duan Wenqi consider both financial performance and non-financial performance. Through the four key channels of efficiency, locking, complementarity and innovation, they have six capabilities from operation, profitability, growth, users, collaboration and management. Starting from the dimension, the overall conceptual framework of enterprise value creation on the Internet platform was built [4]. Tian Wuxing and Dai Shuangshuang proposed to shift from traditionally relying solely on financial data to non-financial value standards such as users, brands and human resources [5]. Zhu Lei proposes to use non-financial data to help transform banks [6]. At present, scholars' research on the value of Internet enterprises has gradually turned to the evaluation of the value of Internet enterprises based on non-financial data of enterprises. The research on traditional financial value of enterprises has declined, but the traditional three financial statements are still relatively mature systems. With the booming development of the Internet industry, this article chooses Jinshan Software. As a research object, Jinshan Software has been listed since 2007, and its business operations are in good condition. Financial data are disclosed in the Hong Kong Stock Exchange. II. FREE CASH FLOW DISCOUNT THEORY MODEL As early as the 1980s, the new concept of free cash flow was proposed by scholars such as Alfred Rabaport of the United States and De Jensen (1982) of Harvard University. The free cash flow of an enterprise is the cash flow that can be allocated to the investors who provide capital to the enterprise to the greatest extent. It is derived from the cash flow generated by the enterprise in daily operations, after deducting the income tax and the investment funds needed for the enterprise to reproduce. The calculation formula is: company value