Which metrics are relevant in European listed companies? Evidence from Nineties

Abstract

The paper investigates the relation between the Share Price and three performance indicators: Net Operating Profit expressed by EBIT, Cash Flow From Operation and Economic Value Added. The sample includes 42 listed industrial companies chosen in four European financial markets, such as United Kingdom, Germany, France and Italy, all listed in the period 1992-2001. The findings of this paper are consistent with the previous results in assessing the relevance of EVA in predicting future financial performance, but they ought to be interpreted with cautions due to two main limitations: (i) relatively small sample adopted, that is companies chosen are the highest in terms of Market Capitalisation within the markets they are listed in, but they might not be representative of the whole market; (ii) results, when tested for the presence of structural factors in each market might change in significance, due to some specific structural factors within each market. However, investigation of those factors in more depth is outside the scope of this paper.