Evaluation Of Thermal Power Companies Based On EVA

As an important part of power industry, thermal power companies are the basis of China’s economic development. Since the reform accelerates, they play a more and more important role in the development of China’s electric power industry. With mergers and acquisitions, venture capital investments and other property rights exchange have become increasingly frequent, valuation of thermal power companies, being one of the core issues in transactions, raises more attention. How to determine the value of these companies has become the focus of managers and investors.EVA valuation, which was originated in the United States in the 1990s, has been widely applied in performance appraisal in various industries. State-owned Assets Supervision and Administration Commission of the State Council (SASAC) requires central government owned enterprises to implement EVA assessment as a method of performance management. However, the application of EVA evaluation model in assets evaluation is still in its early development stage.This paper seeks to apply the EVA two-stage valuation model to assess enterprise value of thermal power companies. First, this paper determines the meaning of enterprise valuation and the objects of evaluation. Then, it indicates the purpose of enterprise’s value assessment, and clarifies the definition of enterprise value in this paper. Third, it introduces the concepts of economic value added, and describes the calculation process in detail. Fourth, it analyses the factors that affect thermal power enterprise value; and compares different enterprise value evaluation models. In the end, it clears that economic value added model can be well applied in thermal power company evaluation.This paper selects a two-stage EVA valuation model to evaluate enterprise value of Inner Mongolia Mengdian Huaneng Thermal Power Corporation Limited. In empirical research, the paper selects the company’s financial statements from 2010 to 2014 as the basis for analysis and evaluation, predicts its 2015-2024 financial statements and evaluate its annual EVA value. Then, it derives its value according to the selected two-stage evaluation model, and finally calculates the value of the company. Assessment result demonstrates that EVA valuation model could reasonably evaluate future potential value of thermal power companies, which provides significant insights for investors.