EVALUATION OF COMPANY PERFORMANCE WITH ACCOUNTING AND ECONOMIC CRITERIA: IntroductionNowadays, according to the company’s development and the separation of ownership from management, the discovery of appropriate criterion has become increasingly important for evaluating managers and company’s performance. According to Jahankhani & Sohrabi, in order to ensure optimal allocation of limited resources, evaluating of the companies’ performance is vital. Suitable criteria for evaluating performance of the enterprise or shareholder value must be used, if the value of the company does not propel toward real value, the funds are not allocated properly.
Performance of the Company can be calculated by using different methods. The criteria related to determine a company’s value and managers’ performance can be divided into two categories: (i) Accounting measures (ii) Economic measures. In the accounting model, firm value is a function of various criteria such as profit, earning per share (EPS), rate of profit growth, return on equity (ROE), return on assets (ROA), divided per share (DPS), book value (BV), operational cash flow (OCF), return on sales (ROS), and shares of supply and demand. In the economic model, firm value is a function of power of asset profitability, potential investors, and difference between rate of return and weighted average cost of capital (WACC) (Jahankhani & zariffard, 1995). The most of economic measures involve: economic value added (EVA), refined economic value added (REVA), market value added (MVA), cash value added (CVA), and free cash flow (FCF) (Pouyanfar, Rezaee, & Safabakhsh, 2010).
The study is aimed to examine the capabilities of economic measures (EVA, REVA, EVA momentum) in explaining company performance as compared to accounting measures (ROA, ROE). The proponents of EVA claim that economic measures have more relationship with stock return than accounting measures. The purpose of this study is to examine the claim of the proponents of EVA in Bursa Malaysia. The remainder of the paper is organized as follows: research objectives, Literature review, theoretical framework, methodology, and conclusion.
This study aims to achieve the following objectives:
1.    Providing independent empirical evidence on the information content of EVA, REVA, EVA momentum, ROA, and ROE.
2.    Evaluating the increasing interest in economic measures in the business press, increasing use of EVA, REVA, and EVA momentum by firms and among academics, and potential interest in economic measures among accounting policy makers.
3.    Identifying whether economic performance measures (EVA, REVA, EVA momentum) can correlate with stock return, and can use these tools for evaluation of companies’ performance.
4.    The study is also aiming to test whether there are any significant relationship between economic performance measures (EVA, REVA, ENA momentum) and accounting performance measures (ROA and ROE) with stock return.