This is Buffett's discounted cash flow method method for calculating stock valuation: it applies to bank stocks. 1. The model theory of discounted cash flow method can be roughly divided into two categories: fundamental analysis and technical analysis. With the development of the stock market, fundamental analysis has become the main analysis method used by investors. According to fundamental analysis, stocks have "intrinsic value" and the stock price fluctuates around the value. In the book "Securities Analysis" published by 1934, Graham and Dodd made a comprehensive exposition of the fundamental analysis theory by deeply reflecting on the price crash of the American stock market in 1929, which became a classic in this field. They believe that the intrinsic value of the stock depends on the company's future profitability, and the stock price will temporarily deviate from the value due to various irrational factors, but with the passage of time, the stock price will eventually return to the intrinsic value. Graham and Dodd's important contribution to the basic analysis theory is that the intrinsic value of stocks depends on the company's future profitability, while it was generally believed that the stock price depends on the company's book value. Since then, Gordon has further quantified the "intrinsic value" and put forward the stock pricing dividend discount model (also known as Gordon model). According to this model, if an investor holds a stock, he will get a dividend of D in the first year, and then the dividend will increase at a fixed rate of G every year, and the discount rate of the stock is R (depending on the market interest rate and the risk of the stock), then the intrinsic value of the stock is V=D/(r-g). Gordon model has become the basic model of stock valuation and plays an important role in fundamental analysis theory. The biggest problem encountered by Gordon model in practical application is that listed companies often change the dividend payment rate because of corporate strategy or other reasons, which leads to the model not playing a good role. As a result, people have extended the Gordon model and used the free cash flow of equity as a measure of the future income of enterprises. Because the cash flow of enterprises is relatively stable and difficult to be manipulated, it can reduce the interference of specific management measures of listed companies on stock valuation. Another expansion direction of Gordon model is that people have developed two-stage and three-stage models for the change of enterprise growth rate. The two-stage model is suitable for moderate growth in the early stage and low-speed steady growth in the later stage; The three-stage model is more complicated, which is suitable for the situation that the enterprise grows at a high speed in the first stage, then the growth rate in the second stage decreases gradually, and the growth rate in the third stage is low and stable. The essence of value investment is to estimate the intrinsic value of stocks by using the financial asset pricing model, and to find those potential stocks whose market price is lower than their intrinsic value by comparing the stock price with the intrinsic value, and to invest in them in order to obtain excess returns beyond the performance comparison benchmark. Therefore, how to correctly evaluate the intrinsic value of stocks is a problem that investors must pay attention to. In essence, investors buy what they think the company may create in the future, not the company's past performance, and of course it cannot be the company's assets. Therefore, in modern enterprises with the goal of maximizing shareholder value, the value evaluation of listed companies' stocks pays more attention to the evaluation of the company's future profitability. Second, the application research of the stock price discounted cash flow method model. The basic principle of the stock discounted cash flow method model is that the current price of a stock is equal to the sum of the present value of its expected cash flow. This model is based on the growth and expected future cash flow of a specific company, so it will not be affected by market disturbance. However, the parameters of this model are difficult to estimate. We can never be sure that any parameter estimation is correct, because each parameter depends on other parameters, so how to decide which group of parameters is correct? The quality of stock valuation will ultimately depend on the quality of information obtained, which depends on whether the market is effective or not and whether the cost of obtaining information is limited. The dividend discount model needs the dividend distribution rate of listed companies and forecasts the dividend distribution growth rate. However, the cash distribution of listed companies in China is not a common phenomenon, and the amount of cash distributed by cash distribution companies is also limited. The actual situation of China stock market is that enterprises often don't pay dividends in cash, and more enterprises choose stock dividends to pay dividends, which is actually equivalent to capital increase and share allotment, and does not give substantial returns to investors, which also makes the discount model based on cash dividends lose its valuation basis. Moreover, stock dividends are paid irregularly, which increases the difficulty of discount model calculation. Although the above-mentioned dividend distribution situation exists in China, the dividend discount model is not necessarily completely inapplicable in China. Even for stocks without dividends, if the dividend ratio is adjusted to reflect the change of expected growth rate, a reasonable evaluation value can be obtained. A high-growth company, even if it doesn't pay dividends at present, can still calculate its value through dividends. As long as the conditions of decreasing growth rate and increasing dividend are met, that is, when the company is in steady growth (the company's income growth rate is at a normal or low level in its business field), the Gordon growth model can be used to properly evaluate its stock value. For medium-growth companies (that is, the company's revenue growth rate is above the average level in its business field), the two-stage discounted cash flow model can reflect that the company has certain growth and change characteristics, while the three-stage model can better reflect the characteristics that high-growth companies (the company's revenue growth rate in its business field is much higher than the normal level) tend to grow steadily for a long time. However, if the dividend payout ratio can't reflect the change of growth rate, then the dividend discount model will underestimate the value of stocks with no dividend payout or low dividend payout, and it may be a relatively correct valuation to evaluate the stock value by using the above relative value model. The discounted cash flow model is a method to establish the enterprise value by estimating the expected future income of the enterprise and converting it into the present value at an appropriate discount rate. The use of this method should be based on the past historical operation of the enterprise, and comprehensively consider the industry prospect, future input and output, the enterprise's own resources and capabilities, various risks and the time value of funds, and then make a forecast. Using this method to evaluate the selected enterprise is based on the comprehensive analysis of the external factors and internal conditions of the enterprise, so four main factors need to be solved when evaluating the enterprise. (I) Cash flow This is a forecast of the company's future cash flow. It should be noted that predicting the future cash flow of the company requires in-depth understanding and analysis of the company's industry, technology, products, strategy, management and external resources, as well as personal understanding and judgment. The key to determine the net cash flow value is to determine the sales revenue forecast and cost forecast. The forecast of sales revenue should refer to the actual situation in the industry horizontally, and at the same time consider the position of enterprises in the industry, compare competitors and combine their own conditions; Vertically, we should refer to the historical sales situation of enterprises to minimize the uncertainty in the forecast. Cost prediction can refer to the situation in the industry and combine the historical situation of the enterprise itself to make a reasonable prediction of the cost expenditure of the enterprise. (2) Discount rate funds have time value. For example, a loan from a bank requires a loan interest rate of 6%, but the time is relatively short, while the return on capital obtained from a general venture capital fund may be as high as 40%, but the time may be longer. In the application process, if it is a traditional enterprise with less risk, the social discount rate (the average rate of return of the whole society) should usually be adopted. The social discount rate varies from country to country and is generally the sum of the interest rate of public debt and the average risk rate. At present, China can adopt the rate of 10%. If it is a high-risk and high-yield enterprise, the discount rate is usually high, and the evaluation of small and medium-sized high-tech enterprises often chooses 30%. (3) Enterprise growth rate Generally speaking, the forecast of growth rate should be based on the forecast of industry growth rate under the premise of sustained and stable operation of enterprises, and on this basis, it should be appropriately increased or decreased in combination with the enterprise's own situation. In practical application, some conservative estimates will also take the growth rate as 0. It should be noted that the estimation of the growth rate must be within a reasonable range, because no enterprise can always grow at a rate higher than the growth rate of its surrounding economic environment. (D) The benchmark period of duration evaluation, that is, the growth life cycle of the enterprise, is the premise of enterprise value evaluation. Usually, it is based on five years, and it will be extended or shortened according to the actual situation of enterprise operation. The key is that the choice of time period should fully reflect the growth of the enterprise and its future value.