Corporate Financial Distress Early Warning Based On Economic Value Added

This paper reviews the concept, theory and research methods on financial distress. Then it introduces the concept, background, applying field, shortcomings and the previous domestic and abroad study on EVA. We try to build a connection between EVA and financial distress so as to predict financial distress using a method different from previous models or methods.We design our study based on the calculation of EVA. By quitting the stocks whose history less than 5 years, we choose 710 stocks (which includes 136 "ST" stocks) from China's A stock market. Then we calculate EVA of those stocks using their trading data and financial statements.We classify ST companies and non- ST companies into two combinations. Then we compare the proportion of their negative EVA . We analyze the proportion of negative EVA of ST companies and their position especially. We find the proportions of ST companies and non- ST companies are significantly different.We compare average EVA of every industry and find that some industries have positive EVA in 5 years and other industries have negative EVA and the others vary in every year. We also do similar comparisons inside manufacturing industry and get similar results.We find that EVA can be used effectively in the study on financial distress.