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Strengthen the cash flow in the evaluation of the performance of listed companies

Author: LiuTong From: www.yourpaper.net Posted: 2009-04-18 22:04:10 Read:
[Abstract] In this paper, on the basis of analysis of the problems in the existing listed companies performance evaluation system applications, the emphasis on the evaluation of the performance of listed companies should pay attention to the cash flows supporting role, and described the cash flow index system and its application, with a more strong relevance and practical significance.

The performance evaluation process and results of the operation and management of enterprises within a certain period to make an objective, fair and accurate judgment, objectivity, impartiality and accuracy is an inherent requirement of the performance evaluation. But in recent years, many listed companies by means of related party transactions, asset restructuring, changes in accounting policies, playing the accounting numbers game, to manipulate profits, to whitewash the packaging of the financial statements, the performance evaluation of a departure from this requirement. Which of course, was as subjective factors, but objectively speaking, profits as a measure of an important indicator of profitability, by itself, there is a possibility - some way to do a pretty, resulting in distortion performance evaluation. To this end, supported by a cash flow evaluation, is conducive to the "ruthless" stripped of its inflated veil.

Problems in the evaluation of performance of listed companies

Currently, the most representative and influential system is used in the evaluation of the performance of listed companies United Finance Limited and Statistics and Evaluation Division of the Ministry of Finance Task Force of experts to establish the performance of listed companies evaluation system. This system levels set 21 financial evaluation, financial benefits for the core aspects of the consolidated balance operations, solvency and development capacity to evaluate the performance. Analysis of the application of this evaluation system, you can find the following question:

(A) do not attach importance to cash flow information
The system in addition to the earnings cash coverage ratio and cash current liabilities ratios, basically based on the accounting profit as the core financial indicators. Accrual accounting profit is based on income in the accounting of each accounting period and shall bear the cost of revenue generated, which left a large space for listed companies to manipulate profits, laid the foundation for may lead to the hidden dangers of false profits. In fact, some listed companies is to use this space, such as accrued income less, and more charges or the contrary, in the accounting period in the transfer of profits or loss, or concealment of profits or losses, resulting in false profits.

(B) the accounting policies and accounting treatment option to encourage the possibility of the use of this space
The financial reports of the listed companies to follow generally accepted accounting principles, accounting standards as contracts, rigid and incomplete, but it is also the outcome of the game by the various stakeholders. To seek equilibrium between stakeholders, accounting standards gives certain accounting policies and accounting treatment option, "Enterprise Accounting Standards" issued in 2006, which is more prominent. This allows the specific application of accounting standards has actually transformed into enterprises choose accounting policies and accounting treatment, there preparers for their own interests, the use of principal and agent information asymmetry, use this option to adjust the financial data.

(C) The current performance of listed companies evaluation standard value does not reflect industry differences
The current performance of listed companies evaluation standard value is based on all enterprises of the society as a whole when the actual operation data estimates developed a uniform standard value for all listed companies to the advantage of cross-sectoral evaluation: a small sample to avoid the development of evaluation criteria lack, to reflect the performance of listed companies in which the level of the enterprise of the whole society, to enhance the performance evaluation of practical significance; But its shortcomings: industry characteristics and size of listed companies, will exist between the value of its financial indicators differences, and some are not comparable. For example, the Union Finance Limited and other departments of experts composed of Task Force 2005 Results Top 100 listed companies in the list, the resource-based industries in the performance of listed companies is the most eye-catching, a total of 54 selected, accounting for 2005 results for the half of the top 100 listed companies. Petroleum and petrochemical industries 21, 18 metal and nonmetal industry, eight of the coal mining industry, Power, Steam and hot water production and supply industry 7. These industries accounted for advantages in resources, the lack of a basis for comparison with other industries do not have the resource advantage. Therefore, a unified standard value as a basis to evaluate the large differences in the basis of industry, the results is difficult objective, fair and accurate reflection of the true ranking of the results of operations.
Based on the above analysis, the evaluation of the performance of listed companies should strengthen the application of the cash flow to compensate for and correct the lack of accounting profit as the core financial indicators in the evaluation of performance. Second, the cash flow in the performance evaluation of the importance

Cash flows based on a cash basis, reflecting the enterprise a certain period of cash and cash equivalents inflow and outflow enterprise a certain period balances and the amount of available funds. Compared with the accrual basis of accounting profit targets, its advantages are: cash flow information does not exist any assumptions and estimates can not easily be distorted by the managers, and thus can be more objective and truly reflect the quality of corporate profits. Cash flow reflects the company's ability to pay, to some extent, reflects the company's profitability. Conceivable that an enterprise profitability and ability to pay, the quality of its earnings situation is what it looks like! In reality, Lam shares, Yinguangxia fraud Company's financial statements to its profit and cash flow deviates from the blue-chip company's cash flow is very tight, and even the operating cash flow is negative, a phenomenon investors and creditors and other stakeholders rise after doubt, to attach importance to the cash flows from the cash flow to evaluate the company's true financial position and operating results. The reason why cash flow is of concern to investors, creditors and other stakeholders, for investors, the most concerned about is the investment return and investment ability to obtain transferability; creditor, the most concerned about the ability to earn interest and principal due. Referred to in the care of both with cash flows, to point to whether the company has sufficient cash, cash generated from operating activities. Accordingly, investors and creditors and other stakeholders can be concluded that the tangible benefits of their own are able to get really secure.

Therefore, the evaluation of the performance of listed companies should pay attention to the role of the cash flows. That is, to strengthen the role in support of the cash flow to evaluate the current accounting profit as the core financial evaluation index system is more comprehensive, objective, impartial and accurate. After all, cash flow and accounting profit from two different angles to reflect different accounting information, combination can Shiyibuque, features complement each other, complement each other. Liu Min, an empirical study on the Shanghai Stock Exchange listed companies reported accounting information content of earnings and cash flows from operating activities, the results also proved this point. China's listed companies announced accounting earnings and operating cash flow can be passed to investors decision-making information. There are some differences, both the amount of information contained in their own focus. Compared to cash flows from operating activities, accounting earnings more explanatory power of investor decision-making behavior, and its information content is richer. The aforementioned Lam shares, Yinguangxia examples, also reveals this truth.

Third, the cash flow in the evaluation of the performance of listed companies

Cash flow to be applied in the evaluation of the performance of listed companies, you first need science to build cash flow index evaluation system. I mainly focus on listed companies from operating activities Net cash flows from the core, according to data provided by the balance sheet, income statement and cash flow statement for the present capacity, debt service ability to pay, operational efficiency and development capacity in four areas to build .

(A) for existing capacity in terms of
For the present capacity of the most important aspects of the cash flow index, which reflects the use of resources listed companies ability to obtain cash. Resources can be sales revenue, total assets, net working capital, net assets, or the number of shares. Traditional profitability indicators such as return on net assets and the main business profit margin exists can only evaluate the profitability of the business "amount can not evaluate the profitability of the business" quality "of the amount of defects and does not reflect accompanied by a cash inflow profitability. Therefore, when evaluating the profitability of the enterprise, for indicators of existing capacity is very necessary.
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