The EVA Theory And Corporation Governance

EVA is the abbreviation for Economic Value Added. It is the net operating profit after taxes minus the economic cost of a company's current assets. EVA is a new standard of evaluating the creation of value and fortune. Form the viewpoint of arithmetic, EVA amounts to the net operating profit after taxes minus the cost of liabilities and owner's equity, reflecting whether a company is profitable in economic sense instead of in accounting terms. It comes from the regulation and analysis of both balance sheet and statement of income, presenting the users with a real vision about the true state of corporation operating and the extent to which the creation or destruction of shareholders' treasure climbs.EVA introduces the theory of capital cost to the traditional performance evaluation criterion. By accounting adjustment, it revises the potential deviation and distortion of the accountant principle and also let the enterprise's performance be related to the managers' pay. Based on the EVA Business performance evaluation system, the salary driven mechanism is an effective method to enhance the efficiency of business operation and increase enterprise's value. In the mean time it also provides a new way of implementing company's value-based management as well as strengthening and improving company's management mechanisms. This paper is constructed based on the above assumption.The first and second parts of the article mainly emphasize on the introduction of basic conceptions, such as, the meanings of company management, the definition of EVA, calculation and the other indexes of EVA performance evaluation system. The purpose is to enable the readers to have a basic understand about these conceptions and make a matting for the outspread of the following text.The third part of the article discussed the significance that comes from EVA to the enterprises of our country through introducing the EVA performance evaluation system and the case of ChangHong. There are a lot of reasons which resulted in the loss of country-owned enterprises, one of the most important point is that theyignored the expiation to capital of rights and interests, and misunderstood it as a kind of "free capital", which can be used immoderation and unconditionally. As a result, which led to the operators could not attach importance to efficient use of their capital and resulted in the ceaseless misplay, repeated investment and poor investment benefit which fell short of the enterprises' decision-making in the long run. After introducing the index, which not only can help the operators of country-owned enterprises to build the chowmatistic cost notion of modern company, but also can think much of the payment expense which is brought by the usage of enterprise stock capital and emphasize the efficiency of capital usage.The fourth part mainly introduced the salary prompting mechanism that is based on EVA. It has became the regardful focus to the enterprise owners and theorists that how to set up the effective salary inspiriting system and how much to the managers based on the value of enterprise. And it is the same thing to the enterprise owners. In western world, Stern Stewart&Co. pioneered EVA to determine incentive bonuses that make managers think like owners and the EVA has been proved effective. Some of our scholars recommended the EVA, but how to apply it in our corporations with the situation of our country? We must research deeply the meaning of the EVA and its operating way.The fifth part as the conclusion of the article, analyses the significance of using for reference about improving the management for the enterprises of our country via EVA management mode on the basic of the article conclusion and some problems about Eva using in china theory need to be noticed.