New Contents Of Management Accounting -- EVA And Balanced Scorecard

The traditional performance evaluation system mainly takes financial indicators as the core, and there are many disadvantages in its practical application.

The economic value added and the Balanced Scorecard have realized the innovation of the performance evaluation method, and enriched the contents of management accounting.

The limitations of traditional performance evaluation system are: (1) paying attention to the evaluation of financial indicators and neglecting the evaluation of non-financial indicators. Most of the key factors of successful enterprises are non-financial indicators, such as product quality, market share, customer satisfaction and employee satisfaction.

The traditional performance evaluation does not include these aspects into the evaluation index system. It only attaches importance to the financial indicators calculated according to the accounting statement data, and lacks comprehensive evaluation of the key factors that affect the success of the enterprise. Its evaluation conclusion can not reflect the real situation of the enterprise scientifically.

(two) pay close attention to the past evaluation and neglect the evaluation of the future. The traditional performance evaluation method is based on the data provided by the accounting statements, and calculates the ratios reflecting the profitability, debt paying ability and operation ability of the enterprises. It also evaluates the business process and results of the enterprises through horizontal and vertical comparison or factor analysis.

The data in accounting statements are obtained after bookkeeping, accounting and editing after the occurrence of economic pactions. They are the results of past events, and the performance evaluation based on them can only reflect the past and not reflect the future.

(three) pay attention to the evaluation of the internal business process and neglect the evaluation of the relationship between the enterprise and the environment.

Nowadays, the business environment is turbulent and changeable, and the challenge from the external environment is becoming more and more serious. Without the correct analysis and evaluation of the external environment, it is difficult for enterprises to discover their own advantages and disadvantages and the opportunities and threats they face, and it is very difficult to gain strategic advantages in fierce competition.

(four) pay attention to the evaluation of traditional assets, ignoring the evaluation of intangible assets, especially knowledge capital, such as money, capital, receivables, inventory, fixed assets and other traditional assets play an essential role in the operation of enterprises.

However, in the era of knowledge economy, intangible assets such as knowledge and intellectual capital play an important role in the successful operation of enterprises in a highly competitive environment. For example, the huge difference between the book assets value of Microsoft Corp and the market value of the company can not be attributed to the effect of knowledge and intellectual capital.

Therefore.

The performance evaluation system should reflect the evaluation of knowledge and intellectual capital.

(five) pay attention to the evaluation of operational ability and neglect the evaluation of enterprise's innovation ability. The core feature of modern economic development is innovation. It is precisely because of continuous innovation that economic development has strong support and motivation.

At present, international competition is mainly economic competition, and the core of economic competition is the competition of technology and talents.

Innovation is the key factor for the formation and maintenance of the core competitiveness of an enterprise. The position and superiority of an enterprise in competition depends mainly on the speed, scope and efficiency of its technological innovation and its pformation into real productive forces.

However, the traditional performance evaluation method does not incorporate the relevant indicators of innovation capability into the evaluation system, which is not conducive to the long-term development of enterprises.

Because of the above limitations of traditional performance evaluation indicators, the impact of performance evaluation is actually affected. Many people are seeking more effective performance evaluation methods.

In this way, new performance evaluation methods such as economic value added and balanced scorecard appear.

The EVA Economic Value Added (EVA) is based on the defects of the Stern & Stewart consulting company as a single period performance evaluation index for the Stern & Stewart consulting company, and the registered economic mark of EVAQ is developed by the Stern & Stewart consulting company. It is fully expressed in the fortune magazine September 1993.

EVA refers to the balance that a company uses a certain amount of assets created during a certain accounting period minus the cost of the asset.

The formula is: EVA = adjusted operating profit - weighted average capital cost * average balance of assets. The cost of capital refers to the cost of using all capital, including debt capital cost and equity capital cost.

The basic idea of EVA is that capital gains should at least compensate for the risk borne by investors. That is to say, shareholders must earn at least a return on similar venture capital returns in the capital market.

Under the traditional accounting method, many companies' financial statements show profits, but shareholders' wealth does not necessarily increase because accounting profits only deduct the interest of debt and do not deduct the cost of equity capital.

In fact, only when corporate profits exceed shareholders' opportunity cost or capital cost can shareholders' wealth really increase.

The advantages of EVA are mainly manifested in the following aspects: first, on the basis of EVA, the incentive system makes the interests of owners and operators tend to be consistent. It helps to avoid making decisions. The basic principle of the incentive system based on EVA is to calculate the managers' monetary fund according to a fixed proportion of EVA value added, that is to say, the part of the added value of EVA should be returned to managers and employees in different proportions, and the bonus will not be capped.

In this way, the EVA incentive system combines the interests of shareholders, managers and employees together under the same goal, so that employees can share the wealth they create and cultivate their team spirit and sense of ownership better.

Linking EVA with remuneration enables managers and shareholders alike to hold the mindset of success and failure of enterprises concerned, so that managers can think and make decisions like owners, thereby alleviating the moral hazard and adverse selection caused by entrustment agency relationship to a greater extent, and ultimately reducing the management cost of the whole society.

Using EVA as a performance evaluation index will not appear as an indicator of performance evaluation in terms of the rate of return on investment. It appears that departmental decision-makers give up investment opportunities that are higher than investment costs and lower than the current sectoral investment return rate, thereby avoiding decision-making optimization.

EVA, which deducts the total cost of capital, will help to overcome the distortion of traditional indicators to economic efficiency and truly reflect the performance of enterprises. Under the EVA criterion, the rate of return on investment is not the criteria for evaluating the quality of business and the ability of value creation. The key point is whether or not the cost of capital exceeds the cost of EVA.

Therefore, the performance evaluation by EVA is quite different from that of conventional sales, accounting profit or stock market value.

Taking Coca Cola Co as an example, the company formally introduced the economic value added index in 1987, mainly through two channels to increase the economic value added of the company. On the one hand, the company concentrated its capital on the soft drinks Department with higher profitability, and gradually abandoned such businesses as spaghetti, fast drinking tea, plastic tableware, etc. the rate of return less than the cost of capital was gradually eliminated. On the other hand, the capital cost was reduced by appropriately increasing the scale of liabilities to reduce the average capital cost from the original 16% to 12%.. From 1987, the Coca Cola Co's economic added value continued to grow at an average annual rate of 27% for 6 consecutive years, and the stock price of the company increased by 300% over the same period, much higher than the 55% increase in the standard & Poor's index over the same period.

EVA, which is calculated after the adjustment of the operating profit, can eliminate the influence of accounting information distortion to the maximum extent. Because the financial statements produced by the accounting standards are partly distorted to the real situation of the company, when calculating the economic value added, it is necessary to make some necessary adjustments to the handling methods of some accounting statements, so as to eliminate the negative effects brought about by the distortion of accounting information as much as possible, so as to ensure that the evaluation conclusions made by EVA are objective and comprehensive.

In practice, the principles of adjusting the project include the principle of importance, the principle of influence, the principle of availability, the principle of comprehensibility, and the principle of cash receipts and payments.

In the specific operation, the report items that should be adjusted are: 1, research and development expenses and market development expenses.

According to accounting standards, research and development costs and market development costs should be included in the current profits and losses at a time. This will reduce current profits and lead to short-term behavior.

The adjustment made in the calculation of EVA is capitalization of research and development expenses and market development expenses, and the research and development fees and market development fees that will happen in the current period will be a long-term investment of enterprises, and will be added to assets. At the same time, according to the double entry bookkeeping method, the total capital will also increase the same amount. Then, according to the specific circumstances, amortization will take place in a few years.

2, goodwill.

The accounting standards for enterprises stipulate that the purchased goodwill should be amortized for no more than 10 years, and the profits of each period should be reduced.

This regulation will drive managers to consider the impact of merger and acquisition on accounting profits first, rather than first consider whether the merger will create more than capital costs and create value for shareholders.

When calculating EVA, the adjustment is not to amortize goodwill.

Since the goodwill has been amortized in the accounting statements, the accumulated amortisation amount is added to the total amount of capital in the adjustment period, and the current amortization is added back to the net operating profit.

In this way, profit will not be affected by goodwill amortization, and it can better encourage managers to carry out merger activities which are conducive to the development of enterprises.

There are interest charges, deferred taxes and various preparations to be adjusted.

(four) establishing an index evaluation system based on EVA, which can solve the problems existing in the performance evaluation of comprehensive management companies. Using the traditional indicators to evaluate the performance of enterprises, the results will be inconsistent or even contrary.

When a company conducts comprehensive management, the value calculated by traditional index is not necessarily practical.

If an enterprise has both industrial and commercial operation and commercial housing development, what can its inventory turnover mean?

However, there is no similar problem when using EVA to evaluate.

Although EVA has all these advantages, EVA is not omnipotent. It also has some shortcomings and shortcomings.

First of all, EVA still pays attention to financial data, neglects non-financial data, and easily leads to short-term behavior; secondly, EVA application process is more complex, and project adjustment is arbitrary; thirdly, EVA does not consider scale differences, but favors large and low income companies.

The new method of performance evaluation that reflects the characteristics of the times is the Balanced Scorecard Balanced Scorecard, which is an epoch-making strategic management performance evaluation tool based on the successful experience of the performance evaluation system of 12 large enterprises based on the successful experience of the famous American Management Master Robert Kaplan (Robert S.Kaplan) and the president of the international consultancy enterprise of Renaissance program (David P.Norton), which has summed up the performance of 12 large enterprises. (Scorecard)

The contents of the Balanced Scorecard include the following four aspects: 1, financial aspects.

The Balanced Scorecard still keeps the financial indicators as the content of performance evaluation, because financial indicators are the summing up and evaluation of past performance, reflecting the financial status, operating results and cash flow of enterprises, and financial indicators can show whether the business strategy and implementation of the enterprise are contributing to the improvement of the final business results.

The typical indicators of financial measurement include profit, cash flow, capital return, sales growth rate and economic value added.

2, customer side.

The Balanced Scorecard measurement of customers mainly aims at providing customers with long-term profitability, including both existing customers and potential customers.

When evaluating, the main measure is the degree of attracting and maintaining customers.

Because only by striving to improve customer value can enterprises attract and maintain customers and gain long-term competitive advantages. Only with customer satisfaction can enterprises achieve long-term success and enhance the interests of all employees and society.

The measurement indexes of customers include customer satisfaction, customer retention rate, new customers' acquisition, customer profitability and share in the target market.

3, internal business process.

The measurement of the Balanced Scorecard in the internal business process is concerned with the internal processes that have the greatest impact on customer satisfaction and organizational financial goals, including long-term innovation and short-term management.

The innovation process focuses on studying the potential needs of existing customers, or potential customers and markets, and producing products that meet these needs.

The innovation process represents the long wave of enterprise value creation.

The business process is the whole process from accepting orders from customers to delivering products.