Comparative critique of the performance evaluation methods in the Australian energy industry

The purpose of this study is to investigate the efficiency of business evaluation methods in the Australian energy industry during the periods from 1989 to 2007. The six commonly used business evaluation methods (CAPM, WACC, EVA, P/E ratio, DCF and MetaCapitalism) were selected and compared with the share price in the whole market, listed market and delisted market, to explore which valuation methods were better for evaluating business performance in the Australian energy sector over the long-term. An empirical analysis using linear regression, we find evidence that CAPM is a much better method for listed companies to measure the rate of return of an asset in a well-diversified portfolio in the Australian energy industry, while DCF was a better method for listed and delisted companies, when making capital budgeting decisions for public companies in the Australian energy sector. We also find that the generic efficiency prescriptions of the radical corporate strategy: MetaCapitalism, was based on fallible assumptions, and tended to transfer negative signals to the market as reflected in the share price, as well as threatening the long-term sustainability of business and social stability.