Study On Pricing The Firms' Value By Using Economic Value Added (EVA)

Nowadays the Chinese stock market is a little sad to the investors; however the economy of China is the most shining star in the world--the growth rate is more than 7% in recent years. There are two kinds of reasons: one is the institutional reasons, e.g. the confusion of the function of government and corporations;the other is the corporation's reason, e.g. the bad management of corporations. In this paper the author analyses the problem from another point (the traditional financial indexes mislead the managers), what's more the author also tries to find a way to solve this problem--using Economic Value Added (EVA). Firstly the author introduces the theory of EVA, the goal of this paper and the positive functions of EVA system and so on. The following part, from the second to the sixth chapter, the author compares the EVA with the traditional financial indexes to see whether it is superior. Then the author builds a new pricing model (here naming EVA pricing model) which gives the investors a new way to choice stocks. There is no doubt that the firm can improve its profit by carrying on EVA system, and at the same time the shareholders invest or make decision using EVA pricing model, then through EVA the benefit of manager will accord with the shareholder's. Because, in the EVA system, the salary of the manager only depends on the growth rate of EVA, So the manager will think and make decisions like the real owner --shareholders. The rights and interests of shareholders will be protected. The traditional indexes, e.g. EPS, can not do this, because the managers will more care about their salary than the benefit of shareholders.