EVA And Appraisal Of The Listed Companies

The ultimate goal for the executives of listed companies to reach is maximization of shareholders'wealth. A system of exactly appraising enterprise performance should be indispensable. The value created by enterprise every year is the residual income, from which all costs should been deducted, and it still could not be depicted by traditional evaluation systems vividly, such as ROE and EPS. The main defects lay on two aspects. One is that only the debt capital is directly considered to the gain-or-loss of that year. However, the equity capital is usually overlooked. So the judgment of enterprise value is imprecise because of the inadequate cost calculation. The other aspect is that traditional system, based on the accounting information, will be distorted by accounting intrinsic flaws.Being a new type of the appraisal standard, economic value added (EVA) successfully overtakes the above-mentioned defects, and describes the enterprise behavior better. As a result, after 90's, EVA, as an important supplement added, has been broadly adopted abroad, and recently been introduced to China.There are two main functions for EVA application: The appraisal of enterprise performance and the design of executive's bonus. According the original thoughts, this papercircumstantiates how to carry this theory into Chinese practice and how to eliminate theFundamental shortcomings if foreign standards applied mechanically. Therefore, in a creative way, this paper establishes a feasible EVA appraisal system according to Chinese listed companies' character and demonstrates it on some listed companies, such as SiChuan ChangHong Co.; TsingTao Brewery Company; and harbor line companies. In one word, this paper wishes to provide a set of more practical and predictable standard in comparison with ROE and EPS.