Small and Medium-Sized Enterprise Financial Management Goal

Topics: Finance, Economics, Corporate finance Pages: 6 (2333 words) Published: April 25, 2011
existing financial management objective have some distortion in revealing a firm’s capital and profit because people do not consider the cost of equity capital and have a conservative attitude in financial indexs to measure their performance .this paper introduces the main ideas of EVA. At the same time,it elaborates the significant advantages of EVA and it’s importance in Chinese. The first part

Financial control's goal is enterprise managing finances hoped realizes the result, is appraises enterprise managing finances to move whether reasonable primary standard. For the consummation financial control's theory, the effective instruction financial control practice, must conduct the earnest research to the financial control goal, because the financial control goal direct reflection managing finances environment's change, and makes the suitable adjustment according to the environmental variation, it is in the financial control system info's base element and the behavior guide, is in the financial control practice carries on the financial decision-making the starting point and the home to return. Therefore, how is accurate the business finance management localization of target, has to appear extremely important operationally. Looks over the Chinese and foreign to have the representative financial control goal view, regardless of being the output value maximization, profit maximization, the shareholder wealth maximization, the enterprise value maximization, freely their turn of expression and the main body emphasis point differ from, but they only confirm and the measurement debt capital cost, but has neglected the rights and interests capital cost, and takes it income distribution processing. The such rights and interests capital cost's concealed part namely takes the rights and interests capital the opportunity cost not to perform to promulgate. This causes the foreign report the net income to contain two parts actually: Rights and interests capital cost and real profit. If corporation report's net income is zero, reported that the reader will think generally all capitals will obtain the compensation. But in fact this time obtains the compensation is only the debt capital cost, the rights and interests capital cost has not obtained the compensation. Therefore does not confirm and the measurement rights and interests capital cost, in fact was empty increased the profit, had the possibility to mislead the investor to make the wrong decision-making. Actually, as early as before several centuries, the economist thought that “an enterprise must create the wealth for the shareholder, must obtain compared to its debt cost and a rights and interests cost higher reward.”After that British famous economist Alfed marshall proposed economic gain's concept, and thought: “the enterprise must have the enough profit to compensate the owner investment the cost to be able the long-term survival.”Like this we must propose one new financial control target evaluation system by accurate, the appropriate appraisal enterprise's operating results, promotion enterprise general goals realization. Under this background the EVA maximization this new financial control goal arises at the historic moment. EVA is the economic profit, but alternative accountant the profit, it must in the profit subtract all capitals in traditional accountant the expense. Therefore the EVA most main characteristic is the capital cost or the weighting capital cost rate (WACC). basis tradition accounting method, many companies have the profit, but in fact has in these companies many are nibbling the shareholder wealth and the profit behavior, because these companies obtain the profit is lower than its capital cost. But EVA is to exactly above question correction, in other words, EVA is the profit level which defines by the shareholder, after is the deduction all capital cost profit. If shareholder's anticipated profit goal is 15%, namely expressed they may obtain...
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