Central SOEs to adopt EVA evaluation next year

13:57, December 11, 2009      

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Beginning from 2010, the Sate-Owned Assets Supervision and Administration Commission (SASAC) of the State Council will implement economic value added(EVA) appraisal in central state-owned enterprises (SOEs)

The SASAC expected that the detailed assessment programs would be released at the end of December. Implementing EVA assessment will help central state-owned enterprises to focus on the quality of development, strengthen the core business, and curb impulsive investment.

EVA means the net operating profit after tax, excluding investment capital cost (including equity and debt) and is the assessment of real profits. Corporate profit makes sense only when it is higher than capital cost. Currently, EVA assessment has been adopted by several multinational enterprises as a measure of their performance.

Prior to this, financing indicators, mainly absolute indicators such as corporate profits, were the core of central SOEs performance assessment system, which may easily lead to blind expansion of investment.

After adopting EVA assessment, in case an enterprise's EVA is negative, even if it sees surge in profits, it is enjoying only "fake profits."

By People's Daily Online
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