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The Financial Analysis Based on Stock Option Incentive Mechanisms

Author: LiuJuan
Tutor: ZhuWenShan
School: Jilin University of Finance and Economics
Course: Accounting
Keywords: Stock Options Financial Statements Financial Analysis
CLC: F275
Type: Master's thesis
Year: 2010
Downloads: 107
Quote: 0
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Abstract

As a long-term incentive mechanism,stock options has been prevalent in mature markets in Europe and the United States since the seventies of the last century. With the promulgation of Listed Companies equity incentive management methods (for trial implementation) in the end of 2005, Chinese listed companies have also launched their own Stock Option Plan. At the same time, the accounting treatment of stock options placed in the agenda. The Ministry of Finance issued the "Accounting Standards for Enterprises No. 11 - Share-based payment" on February 15, 2006, which was the first clear confirmation of standardized about the stock options, measurement and disclosure. After the introduction of incentive stock options, The factors including the burden of the incentive cost, the exercise of incentive object and the exertion of incentive effects will inevitably impact on enterprise’s financial operating conditions, which will surely make impact on the enterprise information users.As an important management tool, financial analysis can transform the corporate financial statement data and related information into the decision-useful information for the internal and external stakeholders in order to check the completion of corporate budgets, assess the performance of management staff, correctly evaluate the financial operations of enterprises, and reveal the trends of corporate. The current financial analysis system mainly formed by the state-owned capital performance evaluation index system issued by the Ministry of Finance and the main indicators of the financial analysis of listed companies index system, which with reference to the DuPont financial analysis system to put the profit and net capital gains rate as the core indicators. After the introduction of stock incentives options, options expensing requirements will bring about great impact on corporate profits, the accounting treatment of stock options will result in changes in key financial indicators. Therefore, the financial analysis under the stock option incentive mechanism necessarily has its own characteristics.Stock market in china was severely damaged in sub-prime mortgage crisis, which triggered by the global financial crisis beginning in 2008.In the circumstances of huge volatility in the Stock market, a lot of companies have suspended or even canceled a scheduled equity incentive plan. However, there are still many listed companies continuing to implement stock option plans which have been introduced, and gradually starting to exercise. Aimed to the stock option incentive plan of listed companies in china, this paper selected two representative companies to explore the financial analysis under the incentive stock options. This article summarizes the characteristics and considerations of the financial analysis based on the stock option incentive mechanism through two specific case. The analysis of specific cases mainly include the following two aspects: On the one hand, the paper gives the evaluation and analysis to the design and implementation of performance evaluation system of the object of incentives. At the same time ,combined with its own characteristics, the paper further research the good indicators of the performance evaluation which suit for the company; on the other hand, combined with the impact on corporate financial analysis which the incentive stock options implement, the paper analysis the target company’s financial statements.

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