Based On Maximizing Shareholder Value, Strategic Budget Target System

From the middle 1980s, as globalism of economic and development of high-tech has greatly accelerated, budgeting has represented some disadvantages, which mainly is the neglect of contents of the financial indexes or the contradiction with corporate strategy.According to the review on the domestic and international literature, this paper studies linkages among shareholder value, strategy and budgetary targets, with the application of deductive method, induction and case study. The objective of the paper is to construct the strategic budgeting targets with improvement on the Kaplan budgeting model, which comprises the index system and the process to evaluate those indexes in the light of maximization of shareholder value.First of all, the strategy that can maximize the shareholder value should be appraised and selected. From financial point of view, it can be simply calculated and compared. While from the non-financial point, the optimal strategy is such that the internal resource can greatly match up to the external environments, and each element of the strategy is consistent to others.Then depict the strategy by drawing the strategy map that clearly shows the target value and the way to achieve it. The shortage of Kaplan's strategy map model is that it ignores the value driver called (weighed average of capital cost) WACC and its correspondent value creating strategy named risk management strategy, and hence the way the strategy creates value. According to the linkages among decision,risk and WACC, the paper puts forward that risk management strategy is the correspondent strategy of WACC, as the degree of risk greatly affects WACC. While risk management strategy is determined by the investment and financing decision, it should be reflected in the financial part of strategy map as a value creating strategy. The way it creates value lies in operating risk should be managed according to the fluctuation of sales, while financial risk should be managed according to the degree of operating risk.Third, construct the budgeting indexes according to strategy map. Not only should financial indexes be considered, but also those non-financial indexes. The index should start with EVA, and decomposed of sales, EBIT/sales, turnover of assets, assets/debt, DOL and DFL, which is the tradeoff of growth, profitability and risk. It is the absolute and opposite index related to earnings before interest and tax that the profit center should choose, not ROE. Then endow those indexes with given value. Begin with EVA and the key value drivers, and then consider the action that has to been taken, resources needed to achieve the goal and the schedule, finally fulfills the budgeting scheme.At last, the paper validates the theory by three cases.