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Financial Analytics: Science and Experience
 

Economic substantiation of the market criterion of economic value added in relation to banks

Vol. 8, Iss. 18, MAY 2015

PDF  Article PDF Version

Available online: 21 May 2015

Subject Heading: ASSESSMENT AND APPRAISAL ACTIVITIES

JEL Classification: 

Pages: 2-9

Yastrebinskii M.F. National University of Science and Technology MISiS, Moscow, Russian Federation
ma-yastreb@mail.ru

Zaernyuk V.M. Russian State University of Tourism and Service, Cherkizovo, Pushkinsky District, Moscow Region, Russian Federation
zvm4651@mail.ru

Importance Whereas the banking market is actively growing and developing, and transactions of commercial banks with assets and liabilities are increasing, it is necessary to perform a qualitative evaluation of banks, thus providing owners and shareholders with the most complete information about their banks.
     Objectives The objective of the research is to develop methodological guidelines on commercial banks' valuation practices. We reveal the theoretical substance of economic value added and possibilities to apply the indicator to banks.
     Methods The methodological framework comprises results of fundamental researches on valuation by the Russian and foreign scientists. Furthermore, we use scientific proceedings of economists who focus on various aspects of relations between economic growth and the banking sector.
     Results In addition to profitability and profit, the economic profit indicator SEP and economic value added SEVA should be used as estimates reflecting the intended use of investment, since profitability and profit turn out to be of little use in terms of form and substance. Variables that form SEP and SEVA are factors of the cost concept. They represent the current economic information on value (wealth) of any financial or industrial entity. SEVA determines an amount of value added and describes the monetary result of utilizing investment and banks' involvement in the result.
     Conclusions and Relevance The results reliably corroborate the theoretical and practical significance of the EVA formula. If timely and properly assessed, estimates will help avoid many risks, including the acquisition of a risk asset, rather than a well-organized and smoothly operating banking business.

Keywords: economic value added, profit, profitability, asset, indicator, return, bank

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