A Study Of Financial Crisis Prediction Model Based On Eva

Financial crisis is the prelude for enterprise continually losing its business capacity. If an enterprise falls into the continual financial crisis and can not reverse the situation, it will be bankrupt finally. It will also create suffer to the related interest group.The financial crisis appears and worsens gradually, so it can be predicted. If we discover the financial crisis signal in advance, we can avoid or reduce the destructive effect. The financial condition quality will appear through certain financial ratios, so we try to establish a model to input a company's financial factors, and get the company's financial crisis condition as output.Prediction of financial crisis has been studied for a long time, and research on this field is always on the way in both the academia and enterprises to increase veracity of prediction for its great demand in the market. It takes a long time for financial crisis to form and develop; the enterprise value damage is precisely following this process. What the value estimates is economic profit, once the income is bigger than the opportunity cost, the enterprise creates value; or there will be value damage. In the long term, an enterprise without economic benefit does not have competitive power, and it will go into finance crisis.EVA can reveal the actual situation if an enterprise is damaging its value. Compared with traditional financial ratios, EVA is more accurate and more sensitive for financial crisis prediction.I used empirical research method on this thesis, and used EVA instead of accounting profit, to build a financial crisis prediction model of corporations based on EVA. This can provide a beneficial supplement on pure traditional financial ratios used in prediction model.There are 6 chapters in this thesis; the main content is as follows: Chapter 1, introduction. Through case study, we know that EVA is more accurate and more sensitive for financial crisis prediction compared with the traditional financial ratios. Chapter 2, research review on the financial crisis prediction study. Analysis and comparison are given to the former studies, and problems to be solved are proposed. These are the improvement and innovation foundation for this thesis. Chapter 3 is as the basic theory foundation for this study. In this section, a financial crisis formation theory is brought forward, that calls value damage theory, and it also the foundation for EVA used in the financial crisis prediction model. Chapter 4 is about how to build the prediction model, including model selection, sample selection as well as ratio selection. It is proposed that EVA to be used in place of accounting profit in the model and there is an explanation on how to calculate EVA. Chapter 5 is about empirical analysis. In this thesis we defined the ST companies in the capital market as the financial crisis companies, and then we built a financial crisis prediction model on the basis of EVA by multi-logistic regression methodology to verify the rationality and practicability of the new model. The result showed that the model had the accuracy of 84% to predict the financial crisis. In Chapter 6, we discussed some limits of the thesis and gave some suggestions to further study.The main contribution of this thesis is as follows: First, we made a more thorough discussion on the financial crisis definition which is different from the former studies. This definition not only describes the phenomenon of financial crisis, but also reveals the reason that causes the financial crisis. Second, this thesis proposed the theory that value damage caused the financial crisis. Value is comprehensive to predict the financial crisis. Value damage reflects loses because of capital not deployed effectively. In the long term, an enterprise without economic benefit does not have competitive power, and it will go into finance crisis. Third, based on the value damage theory, we introduced EVA into financial crisis prediction indicator system, built a financial crisis prediction model based on EVA. The result showed that this model can predict financial crisis effectively. The last but not the least, this thesis made an improvement of sample selection standard. We used (t-3)-year financial information to build model, and this model is to predict whether the company will be special treated in the t-year. This method avoids overestimation of the model forecast ability.