EVA® is a performance metric that calculates the creation of shareholder valueand is a registered trademark of Stern Stuart, New York. EVA® has been widelyadopted by management when making decisions to increase productivity,where to invest new capital and which underperforming assets to liquidate.EVA® is also widely used by investors and analysts as a measure of companyperformance when deciding on which shares to invest in.While extensive research was done on EVA® and share price performanceinternationally, the aim of this research was to determine whether a positiveEVA® leads to growth in its share price, specifically for retail and bankingshares listed on the Johannesburg Securities Exchange (JSE). The bankingand retail sector was selected as both these sectors experience favourablegrowth in terms of turnover during decreasing interest rate periods andunfavourable growth during increasing interest rate periods. Thus EVA® wasselected as one of the better performance measures to use to show trueoperating performance.
Statistical tests were done on turnover growth rates, EVA® growth rates, EVA®and Turnover, EVA® and Share Price growth and finally EVA® and othercommon performance measures. Common performance measures were limitedto Price/Earnings, Earnings Per Share, Return On Assets and Earnings BeforeInterest, Tax, Depreciation and Amortisation.
After analysis of the results, it was found that turnover growth rates werestatistically similar for the banking sector during the period 1998 to 2007, but notfor the retail sector. Leading on from that it was found that share pricecorrelates well with EVA® for the banking sector however not for the retailsector. The study also further revealed that none of the common performancemeasures correlated well with EVA for both the banking and retail sector.
Copyright © 2008, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria
Please cite as follows:
Nagal, R 2008, A comparative analysis of Economic Value Added(EVA®) by South African banking and retail companies listed on the Johannesburg Stock Exchange, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03162010-121950/ >
G10/64/mh
