Empirical Research On The Ability Of EVA And The Traditional Accounting Profit Targets To Interpret Valuation

In recent years, the rapid development of China’s real estate industry has become a pillar industry of the national economy, many people focus on the development of China’s real estate industry. With the evolution of investment and financing models in the capital markets, as well as, there are a large number of mergers、acquisitions and restructuring activities in the real estate industry, the demand for value information of real estate business is more urgent. the business valuation accuracy requirements of real estate is increasing, therefore, researching the real estate business value assessment system is very urgent and necessary. For a long time, the real estate business valuation indicators is traditional accounting profit information.however, traditional accounting profit indicators only consider the cost of liabilities, it ignores the cost of equity capital, which make it difficult to achieve the impartial assessment of the value information of real estate conpanies. EVA (Economic Value Added) overcomes a shortcoming that traditional accounting profit indicators has. the shortcoming is the ignorance the cost of equity capital. EVA takes the cost of equity capital into account, so the result is more accurate. The western research has made a lot of achievements in EVA practice application, EVA also proved the ability of the explanation of enterprise value, it was significantly better than the traditional accounting profit indicators. Does this mean that EVA in China’s real estate enterprises will achieve the same effect? Western capital markets have developed very well, and the development of China’s market is still in its infancy, many aspects are imperfect, and considering the unique industry characteristics of China’s real estate industry, we still need to do further research.Firstly, the article reviews the theoretical and empirical research results of EVA at home and abroad, and introduces the purpose of this article:traditional accounting profit indicators, the article compares the EVA and traditional accounting profit targets for the explanatory power of the enterprise value of real estate; Secondly, the article theoretically analysed both the use of EVA and the traditional accounting profit targets, providing a theoretical basis for the empirical research, and the article selected 2010-2012 A-share real estate listed companies as our research sample, selecting the MVA (market value added) instead of enterprise value, the article compares the EVA and traditional accounting profit targets (article select the real estate companies commonly indicators, net profit, earnings per share, return on equity and assets net margin) for the value explanatory power of the real estate conpanies, the conclusion is that EVA has a slightly higher ability explanatory power of enterprise value than the traditional accounting profit targets, however, in Western capital markets, EVA explanatory power of enterprise value is significantly higher than the traditional accounting profit targets, there is a certain gap between the EVA and the traditional accounting profit targets. the article analyzes that the difference is mainly because of the imperfections of the current capital market and the number of sample which is not enough. In order to assess the current value of real estate listed companies, further empirical combined the EVA index and the traditional accounting profit targets. it enhance the conclusions. based on empirical conclusions, the article gived some relevant policy recommendations for the real estate companies. with the continuous development and improvement of China’s capital market,the use of EVA in China’s real estate industry will eventually become a trend.