Eva And Value-based Management Model Study

Many problems that exist in our enterprises have impeded their development. Western mature management theories have great applicability. Among those advanced theories, EVA, which is mature and perfect in the theory, has been strongly recommended. This thesis uses western EVA theory, EVA implementing practices and value-based management mode for our reference and hopes that it can help the management establish the right value-orientation and make the right strategy-choice.This thesis begins from the origin of the EVA theory. By comparing the EVA with those indexes, such as the IRR (Internal Rate Return), MVA and Excess Return, it draws the conclusion that the EVA system is accordant to the requirements of the value-based management system. In the following, the thesis emphasizes on the EVA implementation. By studying on the case of SPX, the thesis analyzes on how the EVA influences the management behaviors and how the culture changes. Then it shows the checklist for implementing EVA. The thesis also draws a profile of the successful and unsuccessful EVA users and points out the common problems in implementing EVA, such as the underinvestment problem, the synergy problem and the problem of calculating the cost of capital. It also provides the potential solutions for those problems. The EVA accounting adjustment is an important technical problem in EVA implementation. Because the standard financial reports are often biased by the GAAP, they usually cannot reflect the economic fact. To correct the distortions of the standard financial report, the implementers of EVA can get the credible EVA estimates by adjusting the income figures under GAAP. EVA accounting adjustment has both the benefits and backdraws. It will make the EVA harder to understand. The EVA users should make a trade-off to determine the adjusting items. EVA accounting adjustments should follow the transparency principle and make the managers understand how the adjustments are made.Implementing EVA must involve the management compensations. The EVA bonus plan can be used to incentive the top managers of the companies. Management compensation must keep to four fundamental objectives: ①alignment ②wealth leverage ③retention ④shareholder cost. The development of EVA bonus plans experiences four stages, which are non-EVA Bonus plan, original EVA bonus plan, XY plan and modern EVA bonus plan.EVA may not be of much practical use to lower-level managers. In response to this challenge, companies are turning to drivers of EVA that can be more accurately measured at the level of a particular unit than EVA itself, and that are more closely correspond to the responsibilities of unit managers. One approach to identifying such value drivers is to disaggregate EVA, dissecting it into discrete components that can be more easily measured at lower levels of the company than EVA. Broadly speaking, these values drivers fall into two basic categories: ①components of EVA (financial drivers) ②leading indicators of EVA (nonfinancial drivers). Best practice in performance measurement is converging to a balanced set of measure-financial and nonfinancial, leading and lagging-with a value-based metric such as EVA at the center of the performance measurement system.Finally, the thesis summarizes that any company, that truly seeks to capture the benefits of EVA, must master several kernels.