The Analysis Of Banks' Investment Value Based On The Study Of EVA

EVA (Economic Value Added) was established initially by an U.S. consultant firm Stern Stewart in the 1980s. EVA provides an efficient instrument for the evaluation for financing performance and the real wealth created by enterprise for the stockholders. Today, EVA theory is widely used by banking industry all over the European and American banks, including international famous banks such as CITI bank and HSBC .By the end of 2006, there are 7 listed banks in Shanghai Stock Exchange. How to choose reasonable and scientific methods of value estimate to help investors, creditors and other stakeholders find the investment value or avoid market risks? Traditional performance measurement indicators have some limitation: on one hand, they neglect the cost of equity capital and can not reflect the creation value of shareholders accurately. On the other hand, because of neglected highly growth, some banks which do excellent performance are lower evaluated. So, this paper presents a new method to analyze banking investment value based on EVA. It has two biggest merits: one is the consideration of Equity Capital Cost of estimating company management achievements, embodying the principle of the paying use for stockholders' capital; the second is proper adjustment on income statement and balance sheet, removing the distortion of accounting profit and information.This paper focuses on studying the relation of EVA, Enterprises Value and Market Price. At first, it calculates the EVA created by Merchants Bank for 5 years in Empirical research, and does longitudinal analysis through data and charts. Second, the thesis compares 7 banks'performance in 2006 and forecasts that China Merchants Bank, Shanghai Pudong Development Bank and Industrial and Commercial Bank have good investment value. At last, the latest stock market data in 2007 show the forecast is correct, and then we can come to the conclusion: EVA index is a good indicator of value.