For the last few decades, the growth of companies in korea contributed largely to the expansion of korean economy, but many duplicate investments have performed for the purpose of growth of company's volume. As a result of duplicate investments, the efficiency of investments was dropped and wasted the wealth of a country. Consequently it is required now that companies in korea must make preparations for having a competitive power in the worldwide market by open management and quality management.
As expanding global standard management, EVA, ROE, and Free Cash Flow are used worldwide as a measuring tools of international investment.
EVA is a superior management tool to the traditional performance measurement tools because EVA takes into account the true cost of capital. EVA is introduced in korea about three years ago, but it is used only by conglomerate such as POSCO, LG, Samsung, and Hyundai groups as a major management tool.
The purpose of this study is to improve the optimal classification of companies such as growing company, stable company, and unsuccessful company by using EVA and financial ratios. In order to achieve this purpose totally 504 financial statements were collected during the years 1995 through 1998 and a list of 33 potentially individual variables were compiled for evaluation.
To classify companies into two or three groups, a multivariate discriminant function was computed by the stepwise method which minimize Wilk's lambda and maximize F-statistic.
The hypothesis of this study is that the optimal linear combination of financial ratios, selected by discriminant analysis, will accurately classify companies into two or three groups.
The accuracy of the model is investigated by testing its ability to classify companies into two or three groups by using the holdout samples which are not used when discriminant function was calculated.
The results of discriminant analysis show that 60~65% of companies are correctly classified into three groups and 70~75% of companies are correctly classified into two groups by using analysis samples.
Therefore the hypothesis of this study are accepted; The optimal linear combination of financial ratios, selected by discriminant analysis, accurately classifies companies into two or three groups.
