EVA Application in the Performance Evaluation of State-owned Enterprises in China—Take Gree Group as an Example

China’s capital economy developed relatively late. In 2010, The State-owned Assets Supervision and Administration Commission (SASAC) officially stipulated that state-owned enterprises (SOES) should adopt EVA evaluation index. First introduced the traditional financial index system and measure of EVA index, and then by state-owned joint-stock enterprise group as an example, through the study of the application of EVA index in Gree, comparing to traditional financial index, analysis of the advantages of EVA index in performance evaluation of state-owned enterprises in China, and on the basis of the application of EVA index in our country state-owned enterprise puts forward some Suggestions to improve and perfect.


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Published by SCHOLINK INC. Driven by the e-commerce industry, China's economy is booming in the Internet era. China has successfully leapfrogged Japan to become the world's second largest economy. At the same time, under the impact of virtual economy, China's real economy is facing new opportunities and challenges. On the one hand, real enterprises are committed to expanding online marketing channels; on the other hand, they use Internet thinking to conduct enterprise management and performance evaluation. For enterprises, performance evaluation system is not only a necessary assessment mechanism, but also a prerequisite for strategic decision-making. At present, the organization target of the maximization of shareholders' interests, traditional enterprise performance evaluation method has not meet the needs of times development, use the EVA method can better improve the enterprise performance evaluation of enterprise management and ownership division has become increasingly apparent agency costs under the present situation, and motivate top managers to improve asset utilization and maximize the enterprise value as much as possible. Gree company as global expansion in China's state-owned enterprises are leading enterprise, the enterprise can better practice and improvement of EVA performance evaluation methods, to promote and deepen the EVA in the implementation of the state-owned enterprises in our country so as to better adapt to market economic system deepening reform, accelerate transformation of the mode of economic development and promote the Chinese economy high speed development is of great significance.

Theoretical Significance
Western countries related to EVA theory attention more and more high, but the use of EVA index in our country is still in its infancy stage, however, EVA index to the level of enterprise operating performance evaluation has the objectivity, authenticity and the superiority, is conducive to the long-term development of the enterprise, so Chinese enterprises should actively build reasonable EVA performance evaluation system. Operation system of our country's enterprises and western countries, is a certain difference between enterprises in the use of EVA as a performance evaluation index and cannot be directly used in western countries practice experience and research results, must be combined with the development of our country enterprise specific, to build a conducive to the development of our country enterprise EVA performance evaluation system.

Realistic Meaning
China's manufacturing enterprises usually adopt the traditional performance evaluation index when evaluating their performance, which takes "profit maximization" as the goal and only pays attention to the current scale and benefits, and gives little consideration to the realization of the long-term value of the enterprise. Manufacturing enterprises to improve their performance of the method lies in innovation, innovation will require a large amount of capital in the research and development, research and development with investment, long period and too high risk, high return has the characteristics of high, this feature can lead to manufacturing enterprise operators and managers to increase the size of the enterprise blind investment, the end result is an enterprise in the cost of capital lack of constraints and www.scholink.org/ojs/index.php/jepf Journal of Economics and Public Finance Vol. 6, No. 3, 2020 23 Published by SCHOLINK INC.
with low returns on capital, however, the use of traditional financial indicators for the calculation of the performance of the state-owned enterprises only consider the cost of capital, corporate debt in the cost of equity capital to did not make the influence of consideration, so the result is not to make the circumstances of the performance of the enterprise to make reasonable real reflection, is not conducive to safeguard the interests of the shareholders, but also not conducive to the goal of enterprise value maximization. And use EVA index not only considers the equity capital cost of the impact on performance, but also for some items have been adjusted, not only can create more wealth for the enterprise, the enterprise to maximize shareholder value, can effectively reflect the enterprise's real operating conditions and performance level, further enhance their competitive strength, to resist the ability of the various risks, improve manufacturing enterprises to better adapt to the environment of economic globalization. Therefore, our manufacturing enterprises should learn from the excellent practical experience of foreign and domestic enterprises, and at the same time combine with their own development situation, scientifically and rationally use EVA indicators, and build a scientific and effective performance evaluation system suitable for the development of Chinese manufacturing enterprises.

Literature Review of EVA Abroad
Foreign scholars have paid attention to the theory of EVA earlier, and explored the rationality and effectiveness of EVA. Foreign scholars have carried out in-depth and extensive research on the theory of EVA index, and also used empirical methods to verify the application of EVA index in enterprises and banks. The results of research and analysis are different. John and Dodd (1999) argue that there is no need for accounting adjustments when calculating EVA.
After a series of studies, they found that enterprises did not pay attention to the evaluation of customer satisfaction in the process of using EVA indicators, which led to long-term problems for the development of enterprises. Griffith (2009) studied the accounting adjustment items and calculation process of EVA indicators and tried to find out the relationship between EVA indicators and stock price prediction, but the results were unsatisfactory.

EVA the Advantages of Performance Evaluation Index over Traditional Performance Evaluation
Index Pettit (1996), such as selecting several Banks as samples, studied the Banks of the correlation between EVA and MVA, research results show that the correlation coefficient is 0.4, while the rest of the traditional financial indicators (net profit, return on assets, earnings per share and net assets yield) and the correlation of MVA were 0.08, 0.13, 0.06, 0.1, shows that EVA index compared with the traditional financial indicators, the interpretation of the MVA ability stronger (Song, 2016). Lehn and Makhijia (1997) in the United States has selected 241 companies in the company as the research object, analyzed the enterprise relevant financial data between 1987-1993, the empirical research shows that the market value of the enterprise and the EVA index has a great deal of correlation, and free cash flow, earnings per share and accounting earnings have better than financial indexes such as correlation (Guo, 2011 research samples, conducted an empirical study on the five-year financial data of these companies, and compared the performance of EVA index with that of traditional performance evaluation index. The research results showed that enterprises should change the way of performance evaluation and actively adopt EVA performance evaluation index. Anastassis and Kyriazis (2007)

Literature Review of EVA in China
EVA index is a new concept for some Chinese scholars. In the initial stage, most of them are theoretical studies, and few scholars use empirical studies. In the study of EVA, scholars draw lessons from the empirical research methods of some foreign scholars, and make extensive exploration and Research on the basic theory and practice of EVA.
Song (2017)  the analysis results were compared with the business performance under the traditional performance evaluation indicators, and the research results showed that the EVA indicators were more superior than the traditional performance evaluation indicators.

Literature Review
Through the literature review at home and abroad, it can be found that EVA index has been widely used in enterprise performance evaluation. Whether EVA is used to evaluate the performance of enterprises and banks or to study the driving factors of EVA has become the focus of empirical research. However, due to the differences between Chinese enterprises and foreign enterprises, the existing research results of foreign scholars can not be directly applied to Chinese enterprises. We should learn from the theoretical research results of these foreign scholars, and combine the actual development of Chinese enterprises, and further refine and deepen the use of EVA, so as to make EVA The index is more in line with the economic environment of the enterprise and highlights its role. From the literature, we can also find that the traditional performance evaluation index has some defects. If only using traditional financial indicators or other traditional evaluation indicators to evaluate business performance, then the business performance of the enterprise can not be truly reflected. Using EVA as the index of enterprise performance evaluation can reflect the true level of enterprise performance and promote the further improvement of enterprise competitive strength. However, the research shows that the EVA index is also defective. We need to improve the EVA performance evaluation index to make the EVA index play a greater and better role in the evaluation of business performance.

Value Management Theory
In the 1950s, scholars in western countries put forward relevant concepts of value management theory, and later more and more scholars supplemented and explained this theory. Value management is a relatively advanced management mode for enterprises. Its function is to create more value for the stakeholders of enterprises through management and evaluation of their business activities. The implementation of the value management theory can help the business managers to better solve the problem of investment diversification, and promote the better and faster development of enterprises.
The internal environment of enterprises is different, so the management methods among enterprises will be different to some extent, so will the definition of enterprise value management. and process management, constantly improve the creativity of enterprises and realize the goal of maximizing shareholder value. Meanwhile, it can also help enterprises rebuild internal management process and guide enterprises to achieve multi-level and global management.

Principal-agent Theory
The features of the principal-agent system include three aspects, which are as follows: (1) the principal-agent is formed after the agent entrusts.
(2) Agent includes two aspects: on the one hand, natural person; On the other hand, it refers to the relevant agency with legal personality. (3) The principal shall pay the corresponding remuneration. Professional agency and natural person will receive certain remuneration after accepting entrustment. In the enterprise, the enterprise owners to enjoy the ownership of the enterprise, but may not have the ability of operation and management, so in the management of many enterprises are now with all the separate phenomenon, these owners have strong management ability and abundant professional knowledge managers certain privileges, to make the managers directly involved in the enterprise operation and management, to ensure that the resources get optimal configuration. In this principal-agent relationship, the goals of the owner and the agent manager are different. The ultimate goal of the owner is to maximize their own value. The agent manager's goal is to constantly increase personal salary and leisure time, and then he will care about the business investment risk of the enterprise. There is a conflict between the two. In order to better improve the integrity of the agent and the enthusiasm of the agent to create more wealth for the enterprise, the enterprise should take incentive measures for the principal, so the business performance created by the agent for the enterprise needs to be measured. In this situation, EVA can not only be used as an effective incentive method, but also as a superior and effective management method. Meanwhile, it can make reasonable and true evaluation on the business performance of an enterprise.

Residual Income Theory
Marshall put forward the concept of "residual income" at the end of the 19th century. He believed that the remaining part of an enterprise's economic benefits after deducting the interest of its invested capital is the "real profit" of the enterprise. In the 20th century, some companies began to apply this theory to their own operation and management, but due to the lack of theoretical basis, especially in the aspect of capital cost, there is a lack of reasonable measurement method, resulting in the residual income theory has not been widely promoted and applied. As the theory becomes more and more mature, some scholars have developed a new concept-capital asset pricing model based on the theory of optimal portfolio selection. Many scholars have carried out specific analysis on this model and gradually developed and improved it, laying a theoretical foundation for the perfection of the residual income theory, making the residual income theory more operable, and gradually developing and evolving into EVA theory on this basis. Residual income theory is an important principle to deduct pay investment income part of investors, and the fees included in the cost of this kind of practice and EVA performance evaluation system to deduct enterprise debt capital and equity capital have a common place, EVA is adjusted in essence theory of residual income.

EVA Concept of
EVA is an index formally put forward by Stern Stewart consulting company in 1982. It indicates that the net value of adjusted after tax profit minus all capital costs is the newly created value of the enterprise. In essence, it is a redefinition of accounting profit from the perspective of economics. The calculation method is as follows: EVA = nopat-na × kW, NOPAT refers to the after tax operating profit, which is the adjusted net profit after tax; Na represents the total capital investment, which needs to be adjusted according to the accounting statement data when calculating the EVA value; kW is the weighted average capital cost rate, taking into account the cost of equity capital and the cost of debt capital. The basic idea of EVA system is that enterprise investors can freely realize their investment in the capital of enterprises in the stock market, and then transfer it to other investments. Therefore, investors should at least obtain the opportunity cost of investment from enterprises, that is, the weighted average capital cost of enterprises. At this time, the EVA value is equal to or greater than zero.
If the EVA value is less than zero, it indicates that the net profit of the enterprise is not enough to make up for the cost of capital, and the wealth of shareholders is eroded.

Adjustment Principle
Adjust the after tax operating profit and capital investment to eliminate the distortion of accounting information. According to the latest assessment rules issued by SASAC, the specific adjustment items are as follows: (1) Adjustment of interest expense. Interest expense belongs to capital expenditure and should be added back to operating profit.
(2) Adjustment of R & D expenses. According to the performance evaluation of traditional enterprises, it is easy for the managers to reduce the R & D expenditure for their own short-term interests and give up the long-term development of the company. Therefore, in order to avoid this kind of situation, the R & D expenses should be capitalized when calculating the EVA value, and the amortized expenses should be added back to the operating profit.
( tax operating profit and capital, while the debit balance should be deducted from capital and after tax net profit. (5) Adjustment of various reserves. According to the principle of accounting prudence, bad debt reserves, inventory depreciation reserves, long-term equity investment depreciation reserves, fixed assets depreciation reserves, etc. will be accrued for assets. However, in the calculation of EVA value, only the occurred reserves can be considered. Therefore, after tax net profit and capital will be added to the increase of current reserves, otherwise, it will be deducted.

Calculation of Weighted Cost of Capital
The cost of enterprise capital consists of debt capital and equity capital cost, which can be calculated by the following formula: weighted capital cost = debt capital cost × debt capital weight + equity capital cost × equity capital weight kW = KL * WL + Ke * we

Analysis of Current Situation of Gree
According to the research on the 2014-2018 financial statements of Gree Group, it is found that the total assets, operating revenue and net profit indicators in the accounting statements of Gree Group reflect the gradual growth of the accounting profit of the enterprise. The operating results and development of the enterprise are good. The operating revenue and net profit of the year 2017-2018 decreased slightly, but not obviously. Then, by analyzing the ratio reflecting the profitability, operation ability, debt paying ability and growth ability of the enterprise, we can find that the growth rate of the main business income has an inverse growth from 2017 to 2018, which indicates that Gree may use the new enterprise accounting system to adjust the profit. In these two years, the turnover rate of the accounts receivable in enterprise and the turnover rate of the total assets have declined significantly.

Traditional Financial Analysis of Gree
This paper will analyze the development of Gree Group in 2014-2018 from the perspective of traditional performance evaluation, such as basic indicators, profitability indicators, operating capacity indicators, solvency indicators and growth capacity indicators. According to the above analysis, Gree Electric Appliances Group performs well in profitability, operation ability, debt paying ability and capital market performance, except for the poor debt paying ability ratio due to the influence of cash back account of current liabilities, Gree Electric Appliances has excellent performance in other aspects. In the future, we will also change the way of promoting sales in the past, weaken the scale, and focus on channelling sales and pursuing healthy sales growth as the main goal. At the same time, we will pay attention to improving the construction of online channels to ensure online sales services through offline stores. Due to the difficulties in expanding overseas market, Gree hopes to find a better breakthrough in overseas market. In terms of the main business, first of all, air conditioning is still the main source of profit, and in the future, the focus will be on the mobile phone series and energy management as the core of the smart home and consumer experience services. Recently, Gree suspended trading and announced plans to issue shares to buy main new Electric Appliances has declined due to the overall sales decline of air conditioners, the company has strong financial strength as the foundation and has taken solid steps on the road of diversification.
However, the road of diversification is tortuous, and it will certainly encounter difficulties in the middle.
Whether the company can successfully carry out diversification construction and leave the sales decline dilemma is still full of uncertainty. Although temporary difficulties encountered, in growth stage, but still maintain operating profit was flat, Gree electric appliances and hand heavily, industry leading

Calculation of Performance Evaluation Index of Gree Company Based on EVA
According to the basic data provided by Gree, calculate the EVA index value of the enterprise in 2016-2018.The NOPAT and TC calculation results after adjustment are shown in Table 1 and table 2.  According to Table 3, the enterprise value has increased in 2016, but the enterprise has been consuming value from 2017 to 2018.This is contrary to the results of traditional enterprise performance evaluation methods.

EVA Comparison between Indicators and Traditional Financial Indicators
Through comparative analysis of net profit and EVA value in 2016-2018, it can be found that the net profit of an enterprise does not mean that the enterprise has created value, on the contrary, the loss of enterprise value may occur. As a traditional enterprise performance evaluation index, the net profit value can not measure the real value of an entity enterprise in essence, it exaggerates the enterprise value, and comprehensively considers the EVA value of the enterprise's equity capital cost and debt capital cost, which is calculated from the after tax profit adjusted to the after tax operating profit which can more truly reflect the enterprise's capital flow, and can provide more information to the senior managers Accurate financial information of the enterprise can make it use of the enterprise resources efficiently to improve the economic benefits of the enterprise.

Conclusions and Suggestions
Through the above analysis of financial ratio and EVA index of Gree Group, we can find out that we can grasp the enterprise's operation status as a whole, find out the possible adverse trend of the enterprise, and find out the reasons for the inefficient use of assets. EVA value is affected by operating profit and capital structure of enterprises. Therefore, it can be combined with traditional financial indicators such as sales growth rate and asset turnover rate to find out the problems existing in the operation and management of enterprises comprehensively and efficiently and decompose them to all departments as management objectives. On this basis, the following suggestions are put forward for the EVA index to be included in the performance evaluation system of state-owned enterprises: First, enterprise managers should accept value management from the concept, understand that EVA value is not only a calculated index, its core is that any capital has opportunity cost, managers should consider the opportunity cost when making every strategic investment, so as to make effective decision.
Second, set up the implementation plan of EVA index system scientifically. Although it is very difficult to calculate EVA value at present, enterprises should set up adjustment projects and calculate capital cost in strict accordance with the concept of economic added value. If they only follow the same industry standard or directly use financial data, the application of EVA index is meaningless.
Third, the implementation of EVA is bound to be a long process. Managers should actively learn from the experience of foreign successful cases, and gradually implement EVA from top to bottom.
Fourth, to carry out internal training, not only the financial department should master the core of EVA, but also every employee of all levels of departments should actively participate in the value management of the enterprise.