Research On The Investment Valuation Indices Of Companies During Different Market Stages

Having experienced the bearish market from 2001 to 2005, china's capital market picked up its upward trend in 2006 and reached an unprecedented high. The number of investors also grew dramatically. However, influenced by the subprime crisis and the slow-down of global economy, domestic economic situation has been faced with great challenges since the end of 2007. Investors expect the earnings of domestic companies to fall and the capital market bubble started to burst. The Shanghai Stock Exchange Index has lost 70% in a year, with a high point of 6124 and a low point of 1664. While the A-share market is becoming more integrated with the world market, the fundamentals of the listed companies and scientific valuation methodologies have attracted more and more attention from investors, which also become important considerations in stock pricing. Value investment has become a famous and important investment philosophy. During the process of valuation, investors collect all kinds of information about the target company, conduct fundamental analysis, and make the investment decisions. Therefore, searching for the factors influencing the company's value and constructing an index system based on these factors is not only helpful for the investors to know the company better and to reduce the risk, but also to conduct research and valuation more deeply.With the ups and downs of the market, investors'understanding of risk and returns has deepened and the market rules abided by listed companies and intermediary institutions have become more standardized. The stock pricing mechanism has been improving and adjusting dynamically. Therefore, it's necessary to research the relativity and interdependence of stock returns and public information of the listed company from a systematized perspective in a long period. During different market stages, influenced by the market atmosphere, investors show different preferences, behaviors, and aversion to risks. So the outperformers in a bearish market usually have different characteristics from those in a bullish market.This paper is related to the research field of capital market research on accounting. So the paper starts with a review of the relevant theories and researches. The next step in this paper is to select a long time horizon, which includes two periods—the falling market (2001/6/14-2005/6/6) and the rising market (2005/6/7-2007/12/31). This research looks into the characteristics of the outperformers in these two periods and makes comparison and summary. The two samples individually constitute of top 50 companies with the highest returns during different market stages. This research compares the selected indicators of the Sample 50 and the whole A-share market. Besides the financial indicators which are paid great attention to in mainstream researches, this paper also considers non-financial indicators and conducts factor analysis to deal with the interdependence of the indicators, in order to construct a more complete index system and work as a useful reference for investors.The main conclusions of this research are as follows: Investors pay more attention to the companies'profitability and growth, rather than the operation efficiency, cash flow and the solvency. Those outperformers in whatever market stages have the following"Six High"characteristics—high return of assets and capital (say RoE and RoA), high EPS, high net profit growth, high dividend payout ratio, high attention from research institutions and analysts, and high investment shares from institutional investors. During different market stages, investors have shown totally different attitude to risk—in bearish market investors require high safety margin, pay great attention to the safety of capital and the intrinsic value of the investment target, and the institutional investors always choose the same stocks and gather into similar investments, while in the bullish market, concepts and theme investments are more popular. After rating and summarizing the significant indicators, we build up an investment valuation indices system.