For China Merchants Property Development Co.an Example, The Study On Business Valuation Method Based On EVA

Since2004real estate has been in a stage of rapid development and becomes one of the important pillars of our national economy. Recently, as the impact of the world economic crisis on China’s economy and the increasingly stringent macro-control, real estate industry is also experiencing considerable concussions, furthermore, the neglected disadvantages of real estate during rapid development period are also exposed to public. From the perspective of real estate enterprises themselves, it is extremely important that finding the management problems and the way for improvement by scientific and rational assessing the value on their own. From the investors’point of view, the precise judgment of the target company may profit the rational investment when the real estate company’s share price is continuously increasing.Traditional accounting evaluation indicators have been widely used by managers and invertors, but still exit many shortcomings. Relatively speaking, EVA can overcome traditional accounting evaluation indicators shortcomings by considering the assessment of real estate business value. First of all, EVA considers cost of debt capital and equity capital costs at the same time, and highlight the idea of maximizing shareholders’ wealth. Second, EVA emphasizes the income of enterprise operation activity, so that the strength of enterprise can be known. Third, EVA overcomes the constraints and restrictions of accounting principle of prudence provision, and adjusts some subjects, such as construction engineering, research and development expenses. Therefore, EVA can give a reasonable and scientific assessment value. Finally, EVA emphasizes the ability of value creation, focuses on long-term development and avoids the short-sighted behavior.In this paper, for China Merchants Property Development Co an example, we analyze this company and give recommendations by using the EVA valuation model to assess its value and combining with traditional accounting indicators. The basic idea is as follows:Firstly, this paper studies EVA’s basic theories and ideas, introduces the calculation process, and illustrate the EVA’s valuation model. We carefully describe the EVA’s idea, estate enterprise’s characteristics and how to choose accounting adjustments.Secondly, this paper analyzes the advantage of the use of EVA valuation model to assess the value of real estate business. We firstly analyze the basic situation of China’s macroeconomic environment and their operating conditions. Then we compare three traditional valuation methods which are cost approach, market approach and income approach. Moreover, we conclude the advantage of using EVA valuation model for Chinese real estate enterprises:guide rational investment decisions, improve the operational efficiency of capital and improving corporate governance issues.Thirdly, in this paper, for China Merchants Property Development Co an example, we assess the company’s value by using the EVA valuation model and analyze the EVA calculation results by combining with traditional accounting evaluation indicators.Finally, we draw the conclusion. We give the suggestion on the method of improving the value of real estate enterprises and summarize the problem when company using EVA. Nevertheless, we make some policy recommendations based on case studies.The innovation of this paper is:In this paper, the results obtained by the use of EVA for analysis of real estate investment are fully combined with traditional accounting evaluation. First, the EVA calculation results are compared with the same period net and we find the inconsistencies in the expression of the company’s operating performance. We can know that EVA more accurately reflects its business performance according to their business environment and the adjustment of their strategies in accordance with the accounting policies of the company at that time. Then the main factor that causes EVA changes can be obtained by analyzing the accounting indicators over the same period of Poly Real Estate and Wan Ke. Finally, based on the above analysis, we can know the approach to improve real estate enterprises’ value.