The Application Research On Economic Value Added (EVA～(?)) In Financial Management

Economic value added (EVA), founded and developed by the consulting firm of stern Stewart & Co., is a corporate financial performance measure and management system which has grown in popularity both within and outside the United States in the 1990s. The founders of EVA maintain that EVA is the financial performance measure that comes closer than any other to capturing the true economic profit of an enterprise and also is the performance measure most directly linked to the creation of shareholder wealth over time. EVA has also amassed considerable attention in China as a brand new alternative to business performance evaluation measure and an important device for external investment decision-making purposes.This study attempted to enlarge the application scope of EVA to be the uniform objective of main functions of financial management system. And after applying EVA in an enterprise, the information of total capital cost, which is very useful for informed investors, especially stockholders should consequently be presented through the financial statements. That is the second emphasized point in this study. The form and content in the financial statements, which have been supplemented by the total capital cost information, are also the parts of this study. An introduction to the notions related to EVA is also provided together with future research directions. The main conclusions of this study are: EVA is an advanced and scientific notion in performance evaluation field. The attributes of EVA can meet the requirements of being financial management objective for various concrete functions. The EVA objective will underlie the overall objective, "the maximization of firm value". All the efforts will greatly eliminate the multi-objective confusion induced by existing various measures and objectives in financial management practices and enhance the efficiency and effectiveness of financial management. After applying EVA in financial management system, the consequence of the application, namely, the disclosure of the total capital cost information and the true ability of firm value creation, should be exhibited through the financial statements presentation. Thus, the financial reports will be improved obviously in terms of the relevancy and usefulness for investment decision-making purpose.