Study Of High-tech Companies IPO Pricing Base On EVA

With the Growth Enterprise Market (GEM)'s open, more and more high-tech companies will be issued in the stock market for financing. Initial Public Offering (IPO) is the most important link to complete the investment and financing functions of capital market, therefore, how to determine the IPO price of a high-tech company brings the most concern of financial communities and investors.Because product of high-tech companies has its unique technology and features, it may bring high monopoly profits to its company and could also cause high-risk due to reasons of technical or market development failure. Coexistence of high return and high risk makes the company's growth prospects great uncertainty. This increases the difficulty of assessing the intrinsic value of the high-tech company. As the IPO pricing is based on and referenced to the intrinsic value of the company, it makes more difficult to determine its IPO price. After analyzing the advantages and disadvantages of various traditional valuation methods and the IPO pricing characteristics of high-tech companies, this paper has introduced the economic value added (EVA) indicators. The author believes that EVA-based IPO pricing method is appropriate for high-tech companies. EVA makes an emphasis on company's economic profit rather than its accounting profit, and it can more accurately reflect company's profitability and prospects. So the company's value estimated on base of EVA is more close to its intrinsic value, thus the IPO price obtained is more accurate.According to features that high-tech companies have, such as high research costs and high circulation speed, the author has analyzed the accounting items which need to be adjusted and has defined high-tech Company's EVA calculation formula. Then, with the reasonable assumptions, the paper establishes high-tech Company's IPO Pricing Model based on EVA, which first estimates the company's intrinsic value by using EVA estimation method and then determine the IPO price based on the estimated intrinsic value and the number of total equity. During the process of estimating the company's value, in order to calculate the EVA and the discount rate, weighted average cost of capital (WACC) needs to be determined first. It should be calculate base on the company's changed capital structure which will be changed greatly after the successful listing. In the end, the paper takes a limited company as an example, which has successfully issued and listed in the small board in 2009. The result has proved the rationality of using EVA pricing model to determine the IPO price of high-tech companies.