Valuation of Giant Interactive Group Inc. Using Economic Value Added Method

Abstract

The goal of this article is to discuss the application of the EVA valuation model in the value evaluation of online game companies, and to predict the company's future development trend. EVA refers to the residual income obtained by subtracting the capital cost from the after-tax net profit of the enterprise and measures the difference between the capital income and the capital cost of the enterprise. Mainly by analyzing financial statements, including financial ratios, sales forecasts, creating financial plans, estimating weighted average cost of capital methods, two-stage EVA method and sensitivity analysis for Giant Interactive Group Inc. Moreover, use Z-scores for Giant Interactive Group Inc.'s financials to judge whether there is a possibility that Giant Interactive Group Inc.'s reported earnings have been manipulated. The results based on the two-stage economic value-added method show that the forecast value of the expected future value of Giant Interactive Group Inc. is mainly distributed between 5.528 billion yuan and 15.572 billion yuan. Finally, it is concluded that the valuation of Giant Interactive Group Inc. is too high, and the company's current development is in a downward trend, and relevant recommendations are given for the results.