Research On EVA Value-based Management For Financial Strategy

SASAC(State-owned Assets Supervision and Administration Commission) issued a newly revised The central enterprise business performance assessment of the interim measures in2009, which formulates that all the principals of the state-owned enterprises should be completely evaluated by the means of EVA from the third term(2010-2012). It takes40%, while the profit is only30%. The interim provision means that SASAC has taken more consideration into the supervision of the values added by the state-owned assets rather than the profits. EVA, which is short for Economic Value Added is raised by American Stern Stewart Co. in1980s. It is mainly used in the evaluation of enterprise performance and value management.The objective of enterprise financial management is to maximize the shareholders’ wealth. It demands the enterprises to establish the financial strategic system focused on the value management. EVA is such a tool that can evaluate the values of enterprises. The essence of EVA is a kind of "economic profit", which refers to that the net operating profits are in proportion with the capitals used by investors, and the difference values higher or lower than the investors’capitals. The basic ideal of EVA is that the enterprise can bring its shareholders’values only under the condition that the capital gains are higher than all the cost that invested in order to achieve the values. That is to say, when EVA is positive, shareholders’values increases, the enterprise’s value is up too, vise verse. Thus, in the financial statement, some enterprises’EVA could be negative in spite of its making profits. How to evaluate the enterprises’performances scientifically and guide their financial activities has been a difficult problem that confuses management layers and other benefit related ones. Traditional way of performance evaluation is a system that cored with accounting profit. Because of the shortage of the consideration of the capital cost of the stock ownership, the assessment indexes are limited to the financial indexes such as the sales volume, accounting profit and returns on assets, etc. It causes the differences between the accounting profits and the actual created values of the enterprises. EVA emphasize the creation of the shareholders’values, and it overcomes the shortcomings of other goals such as profit maximization. Thus, EVA has become the measure gauge of the maximization of shareholders’values. The value management system of EVA begins from the analysis of enterprises’EVA performances, and it proposes management ideals, means and behaviors about how to establish the enterprise internal management levels from four aspects which are performance evaluation, management system, incentive system and ideal system. Those management mechanism that aimed at maximizing shareholders’values. The final objective is to assist to improve the enterprises’value creation ability and core competence. All those have more and more make EVA the benchmarking tool in domestic enterprise value management.The paper operates into Four chapters. The first chapter is introduction, which come up with the research situation of EVA, the significance of selected topic and a brief introduction of financial strategy. The second chapter discusses the value management based on EVA, the discussion ranges from the conception and calculating method of EVA and its application in China. The third chapter is the main content of the paper, which constructs the financial strategic system of EVA value management from eight aspects that are EVA and budget management, operating management, investment management, financing management, stock benefit distribution management, performance motivation, enterprises acquisition, financial risk. It comprehensively constructs the financial strategic system focused on the EVA value management. The last chapter analyze the insufficiencies and the prospects in future research of the financial strategic system of EVA value management. It is expected that the my construction will make some references to the construction of financial strategic system in China.