The Eva Study On Listed Companies Of China

With the growing perfection of the capital market of China, the investors are tending to be rational, and the value-based investment analysis is attracting more and more attention. How to value the performance of listed companies in an objective and reasonable manner has turned out to be a major issue in the current theory and practice of securities investment. Besides, the government's effective regulation over listed companies, as well as the perfection of the listed companies' governance structure, relies on a feasible performance evaluation system. Traditional indexes have two limitations and can't accurately reflect the companies' value. Firstly , they don't subtract the cost of shareholders' equality, Secondly, they base on the accounting information which has distortion by itself. EVA is a performance evaluation index newly emerged in western countries since 1980s. Devoid of the limitations of the traditional indexes, EVA reflects with considerable accuracy the value that a enterprise creates for its shareholders in a certain period. The simplest definition of EVA is the surplus profit after deducting the cost of the liabilities and the shareholders' equity from net operating profits. The most prominent advantage of EVA lies in that it takes the cost of all production elements into consideration. Taking the listed companies in China as its major objects of study, through the comparison between EVA and traditional indexes, this thesis attempts to judge which index can evaluate a companies' performance more accurately. The method of study, which combines theoretical and evidence-proofing analysis, is adopted in expounding. The theoretical part generally consists of the following points: the origin and development of EVA, the method to calculate EVA and the comparison between EVA and traditional indexes. The demonstration part mainly takes listed companies as its objects of study. The respective superiorities of EVA and traditional indexes are judged through overall analysis, ranking comparison and the analysis of value interrelatedness. The outcome of demonstration indicates that EVA and traditional indexes are of consistency in evaluating a company's performance. However, EVA index does not surpass traditional ones which means that EVA can't take the place of traditional ones. Meanwhile, the outcome also shows that EVA and traditional indexes possess incremental information toward each other, which reveals that they can supplement each other. The key revelation brought out by the outcome of study lies in that the two categories of indexes should be used jointly while assessing the value of an enterprise and the performance of managers. Since EVA index has not been widely applied in China, and the complicated accountant adjustment is difficult for the public to understand and accept, it is suggested that relevant departments should regulate the adjustment of EVA, and show it in account reports. To better utilize EVA index, China should strengthen the construction of relevant environment and improve the security market's efficiency.