Valuation Of GEM Enterprises Based On EVA

With the rapid development of China's Growth Enterprise Market (GEM), the problem of valuation is becoming more and more important. Compared with Main Board, the target of GEM is to promote the growth of high-tech companies, and it has the characteristic of high-growth, high-risk. EVA minus all capital's cost, reflects a true residual income. The valuation model based on EVA is more suitable for high-tech enterprises. In traditional cash flow discounted model, discounted rate represents the size of risk, and the expected cash flow growth rate reflects the future growth. Therefore, traditional cash flow discounted model includes the company's future growth and risk factors. However, cash flow discounted model based on historical financial data. Some important factors such as R&D capabilities, which can inflect future growth, are neglected in the model. So cash flow discounted model often give inaccurate result when applied in high-growth enterprise evaluationTo solve this problem, the potential growth factor is introduced to modify cash flow discounted model. And the potential growth factor is mainly determined by the ability of technological innovation.When potential growth factor is added in evaluation model, the result shows that modified model has done a better job in GEM enterprises evaluation.In China's securities market environment, many problems reduce the accuracy of valuation model, such as market efficiency, reliability of accounting data and so on. This paper is only an attempt to find a good way to assess firm valuation in GEM.