Is EVA a Good Indicator for Stock Market?

21 Pages Posted: 20 May 2020

Date Written: April 24, 2020

Abstract

The essence of EVA(Economic Value Added) is the "economic" profit generated by enterprise operation. In contrast to the "accounting" profit that people attach importance to, EVA concept reflects that the shareholder capital occupied by the enterprise also has a cost, so the cost of equity must be taken into account when measuring the performance of the enterprise. The formula of EVA calculation is written as NOPAT - (Total Assets - Current Liabilities) * WACC. A positive EVA implies the company is currently creating extra value for the shareholders and vice versa. The following content will discuss if EVA can be a good indicator of the quality of the investment and how EVA can be used in the stock selection. We will focus on the relationship between the EVA value and the stock return by testing the veracity of different literature resources and apply the regression test in the SAS tool.

Keywords: EVA, Regression, Stock Return, Market

JEL Classification: G30

Suggested Citation

Zhu, Gexi, Is EVA a Good Indicator for Stock Market? (April 24, 2020). Available at SSRN: https://ssrn.com/abstract=3584036 or http://dx.doi.org/10.2139/ssrn.3584036

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