Performance Evaluation Analysis of Gree Electric Appliances based on Economic Value Added

Abstract

In today's fiercely competitive business environment, scientifically and accurately assessing a company's true value creation capability is crucial. Traditional accounting profit indicators, which do not account for the cost of equity capital, struggle to reflect the real value creation. Economic Value Added (EVA), as a modern performance evaluation tool, more accurately reflects a company's value creation ability by measuring the portion of its after-tax operating profit that exceeds the total cost of capital. This study takes Zhuhai Gree Electric Appliances Inc. (000651.SZ) as a case study, systematically evaluating its operating performance from 2020 to 2023 using the EVA model. Employing case study and quantitative analysis methods, and based on the company's annual report data, the study calculates Net Operating Profit After Tax (NOPAT), Total Capital (TC), and Weighted Average Cost of Capital (WACC) to derive the EVA values for each year and conducts an in-depth analysis. The results show that Gree Electric Appliances demonstrated strong value creation capability between 2020 and 2023. EVA grew continuously from RMB 6.053 billion in 2020 to RMB 25.839 billion in 2023, a cumulative increase of 327%; NOPAT reached RMB 36.192 billion in 2023, with a capital cost rate of 5.48%. This indicates that the company not only created economic profits exceeding the cost of capital for shareholders for four consecutive years but also continuously improved its value creation efficiency. The growth in EVA is primarily attributed to the stable profitability of its core air conditioning business, continuous R&D investment, and excellent operational efficiency. Compared to the traditional net profit indicator, EVA more rigorously reveals the company's true profitability level: the 2023 EVA was lower than net profit, indicating that net profit includes a portion of the necessary return on shareholder capital. Notably, the growth rate of EVA exceeded that of net profit, suggesting improved marginal returns on newly invested capital and enhanced capital allocation efficiency. This study validates the applicability of the EVA indicator in large manufacturing enterprises, provides a theoretical basis and practical reference for Gree Electric Appliances to optimize resource allocation and improve capital efficiency, and also offers valuable insights for performance evaluation in other manufacturing companies.