Eva -Economic Value Added - 10189 Words

9-206-016 REV: JULY 11, 2006 MIHIR A. DESAI FABRIZIO FERRI Understanding Economic Value Added EVA is based on something we have known for a long time: what we generally call profits, the money left to service equity, is usually not profit at all. Until a business returns a profit that is greater than its cost of capital, it operates at a loss. Never mind that it pays taxes as if it had a genuine profit. The enterprise still returns less to the economy than it devours in resources . . . it does not create wealth; it destroys it.1 — Peter Drucker This note explores the concept of Economic Value Added (EVA)2 and its practical applications as a management control system for performance measurement and incentive compensation. The†¦show more content†¦In short, the firm has paid its operating and capital costs and created additional wealth. Negative EVA, instead, suggests that the firm â€Å"devours resources† (in Peter Drucker’s terms) without providing a commensurate return for their use. The key feature of EVA is that it incorporates a charge for the use of both debt and equity capital. Accounting earnings, on the contrary, only deduct the (after-tax) cost of debt capital (i.e., the interest expense subtracted in the computation of net income). This difference has important implications in terms of motivating managerial behavior. Firms focused on earnings growth will end up investing in any project yielding a return greater than the (after-tax) cost of debt, rather than investing only in projects with returns greater than the overall cost of capital—the basic rule of Net Present Value (NPV) analysis. By explicitly identifying and incorporating the cost of equity capital, EV A raises the bar and makes managers more cognizant of the costs of the capital employed, thereby promoting more efficient allocation of capital. Other available measures also reflect the use of capital. Return on net assets (RONA), for example, is an indication of the ability to generate operating profits relative to the amount of capital employed. However, a simple algebraic manipulation will help explain the advantage of EVA over RONA. EVA = NOPAT − (Cost of Capital * Capital ) EVA =Show MoreRelatedEconomic Value Added Model1584 Words   |  7 PagesSLOVENSKA USING OF THE ECONOMIC VALUE ADDED MODEL FOR VALUATION OF A COMPANY Doc. Ing. Eva Kislingerovà ¡, CSc. Prague University of Economics Introduction There is possibility to use, with respect to the object of valuation, several methods for valuation of a company in practice. One of the most important and highly used group of methods are yield methods. They are usually called Discounted Cash Flows (DCF) methods. Value of a company is derived from present value of future incomes connectedRead MoreWhat Languages Do You Speak? Essay911 Words   |  4 Pagesconversation I had this weekend where this question was asked in another matter and for different purpose. How do you communicate the value you bring to your client/business partner or put it in another context â€Å"What languages do you speak?† I learn an exceptionally noteworthy lesson both at General Electric and Siemens. In order to communicate how supply chain adds value to the enterprise one must communicate not only to one’s peers but notably to the C-Suite. Ignorance or arrogance aside, it is paramountRead MoreThe Product Of Apple Inc.1550 Words   |  7 PagesMarket Value Added – (MVA) A calculation that shows how much the shareholders value has been added within the company as its calculated by having the difference between the market value of the company and the capital contributed by the shareholders within the company. As it does have a great company role on showing how the company has used the investment capital since when the company started to the present, and that data can be used for future prediction of the company. 4. Economic Value Added- (EVA)Read MoreMeasuring and Controling Value Created in Endesa604 Words   |  3 Pagesbusiness strategy. In what primary economic activity is ENDESA engaged? (HINT: the primary economic activity is not the generation and sale of electricity or related activities). Why is it necessary to understand the strategy and primary economic activity in order to manage ENDESA ¡Ã‚ ¦s financial activities? Managers should ensure that selected performance measurement system fits the unique requirements and business strategy of the firm. In general, primary economic activity of the company and itsRead MoreWhat Language Do You Speak? Essay735 Words   |  3 Pagesto a conversation I had this weekend where this question was asked in another matter and for different purpose. How do you communicate the value you bring to your client or put it in another way â€Å"What language do you speak?† I’ve learn an exceptionally noteworthy lesson both at General Electric and Siemens. In order to communicate how supply chain adds value to the enterprise one must communicate not only to one’s peers but notably to the C-Suite. Ignorance or arrogance aside, it is paramount toRead MoreAccounting Profit vs. Economic Profit. the Necessity of a Management Performance System to Boost Organization’s Performance2285 Words   |  10 Pagesthat targets real value creation for shareholders. The objective of this paper is the analysis of two articles of Stern Steward Research, namely â€Å"Accounting is Broken. Here’s How to fix it. A Radical Manifiesto† and â€Å"The capitalism Manifesto. The Transformation of the Corporation - Employee Capitalism –â€Å". Both papers propose a roadmap to fix the conventional accounting shortness through the use of Value Based Management (VBM) as a real and effective management system of value creation and measurementRead MoreA Comparison of EVA and NPV3878 Words   |  16 PagesCOMPARISON OF EVA AND NPV A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA, implementation issues; chronicle the implementation experience of EVA on a real life company). 1    A COMPARISON OF EVA AND NPV 2    A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA, implementation issues; chronicle the implementation experience of EVA on a realRead MoreFedEx VALUE CREATION AND ECONOMIC PROFIT United Parcel Service3193 Words   |  13 Pagesï » ¿MEIHO UNIVERSITY CASE STUDY FOR FINANCIAL MANAGEMENT CASE 4: The Battle for Value, 2004: FedEx Corp. vs. United Parcel Service, Inc. VALUE CREATION AND ECONOMIC PROFIT Lecture: é  ¾ ç ´ ¹ 熙 è€  Ã¥ ¸ « Group 3: F49802134 èÆ' ¡ ç §â€¹ è â€° F49802153 é «Ëœ 玉 ä º « ç ® ® Presentation date: 16th Apr 2012 I. OUTLOOK OF CASE 4 Case 4 mentions about the competition between two leading companies in package- delivery market. FedEx which is the largest foreign presence in China, with 11 weekly flights, servingRead MoreLinkedin Case Essay4071 Words   |  17 Pagesprofitability. However, it is important to balance cost-controls with long-term growth. * The 5-year measurement cycle provides an adequate horizon for management decision-making and should motivate managers to take on projects that add long-term value to the firm. * Although the exact calculation of the performance factor was not described in detail, the plan appears to be fairly straightforward and easy to understand for both managers and stakeholders. Furthermore, the inputs of the performanceRead MoreA Report on a Case Study on Measuring Intangible Assets an Indian Experience2439 Words   |  10 Pagesasset (tangible or intangible) is indeed a commodity one can count on, literally, to improve the performance of the company and help generate profits. No company can own either of the critical assets, neither the employees nor the customers. The value they provide to the company is only temporary and cannot be considered a measurable asset unless it is captured and converted into something the company can own - any new knowledge or skill that can be reused or applied in other areas, be it a new

The Role Of Music And Spatial Task Performance - 1395 Words

The study that will be replicated is the study done by Nantais and Schellenberg (1999), which was a follow-up study for Rauscher’s experiment (1993, 1995), who’s aim was to conduct a study in which to test whether music and spatial task performance are casually related. The aim of Nantais and Schellenberg’s study was to replicate and extend the basic findings of Rauscher et al which were that participants who listened to Mozart before taking a spatial ability test did better than those who sat in silence, also known as the Mozart effect. Nantais and Schellenberg expected that the performance on a spatial-temporal task was better after participants listened to a piece composed by Mozart or by Schubert than after the participants sat in†¦show more content†¦As predicted, the overall levels of performance were higher in the participants’ preferred condition. This is also known as the participants’ preferred stimulus. The major modification mad e between this study and Rauscher’s study is that instead of having the participants listen to Mozart and then sit in silence, Nantais and Schellenberg had the participants listen to Mozart and then a short story. In relation to Rauscher et al. and Nantais Schellenberg, the researcher’s aim of this experiment is to investigate the impact of acoustic environmental stimuli on performance of visual spatial tasks. In order to test this, we will have participants first listen to a section of Mozart music followed by a spatial ability test and then we’ll have the participants listen to a short story also followed by a spatial ability test. The independent variable in this experiment are the Mozart and short story conditions. The dependent variable was the results of the spatial ability test for each condition. The independent variable for this experiment is the acoustic environmental stimuli. The acoustic environmental stimuli were the Mozart or the short story conditions. The Mozart piece used in this experiment was Mozart’s Sonata for Two Pianos in D Major K. 448. The short story used was â€Å"You Are Getting Sleepy† by Gleynn Washington. The type

The Motivation For Jerry And Christopher At A Ice Cream...

During my screenplay workshop, I received a lot of helpful suggestions on my overall motivation of my characters. In my revision process, I tried to focus more on the overall motive for my two main characters. For example, I added the motivation for Jerry and Christopher to open an ice cream parlor. This helped with my revision of plot and main conflict because the two characters did not have enough money for the down-payment on the open space. As a result, they decide to rob a bank in order to get the money for the payment. Another thing I tried to work on during my revision was the characterization of my two main characters. The two characters are, indeed, stupid. However, my goal was to make their appearance a little different and they way they spoke different. An example of my use of characterization is when Christopher speaks. For example, Christopher is very goofy like Jerry. However, he has a small sense of responsibility/wisdom. In the car, he is the one to have a notebook wi th all the information on the vacant space and bank. Moreover, he is the one that starts to become serious when he fights the hostage in the bank. Although both of the characters are stupid, Christopher s character is what keeps the guys going. Without Chris, Jerry would be clueless. We can see Jerry’s characterization through his actions. Jerry does not think anything through. For instance, in the bank, he brings in business cards with both their names on them. This is something stupidShow MoreRelatedWork And Adopt A Natural Energy Booster, The Common Nap Essay1607 Words   |  7 PagesThe founder of the company, Craig Yarde, laughed about the popularity of nap rooms in today’s day and age. He stated that he doesn’t regret his decision, after seeing firsthand what naps at work can do for productivity and morale. Ben Jerry s, an ice cream parlor chain, is also one of the earliest adopters of the workplace napping policy, they have had an office nap room for mo re than ten years. A Ben Jerry’s spokesperson spoke to BBC saying â€Å"the room itself is really part of the larger corporateRead MoreAccounting Information System Chapter 1137115 Words   |  549 Pagespromotions, more stock options, etc. Miller was able to convert the check to cash by writing himself checks and depositing them in his personal account. 3. What pressures motivated Miller to embezzle? How did Miller rationalize his actions? Motivation. After David Miller had undergone therapy, he believed his problem with compulsive embezzlement was an illness, just like alcoholism or compulsive gambling. He stated that the illness was driven by a subconscious need to be admired and likedRead MoreMarketing Mistakes and Successes175322 Words   |  702 Pageslocated in the Pike Place Market, a major tourist attraction near the waterfront. It and three sister stores had opened around Seattle and offered a major contrast to the 50-cent cups of black liquid that were usually served with gobs of powdered cream and sugar in self-service convenience stores. These Starbucks stores offered rich, exotic coffee blends at six to eight times the price of ordinary coffee. By the time Starbucks went public, it had 165 stores, but they almost all were clustered around

Nature in Our Life free essay sample

Whartons  and  Jamess  dissections of hidden sexual and financial motivations at work in society link them with writers who seem superficially quite different:  Stephen Crane,  Jack London, Frank Norris,Theodore Dreiser, and Upton Sinclair. Like the cosmopolitan novelists, but much more explicitly, these naturalists used realism to relate the individual to society. Often they exposed social problems and were influenced by Darwinian thought and the related philosophical doctrine of determinism, which views individuals as the helpless pawns of economic and social forces beyond their control. Naturalism is essentially a literary expression of determinism. Associated with bleak, realistic depictions of lower-class life, determinism denies religion as a motivating force in the world and instead perceives the universe as a machine. Eighteenth-century Enlightenment thinkers had also imagined the world as a machine, but as a perfect one, invented by God and tending toward progress and human betterment. Naturalists imagined society, instead, as a blind machine, godless and out of control. We will write a custom essay sample on Nature in Our Life or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The 19th-century American historian Henry Adams constructed an elaborate theory of history involving the idea of the dynamo, or machine force, and entropy, or decay of force. Instead of progress, Adams sees inevitable decline in human society. Stephen Crane, the son of a clergyman, put the loss of God most succinctly: A man said to the universe: Sir, I exist! However, replied the universe, The fact has not created in me A sense of obligation. Like Romanticism, naturalism first appeared in Europe. It is usually traced to the works of Honor‚ de Balzac in the 1840s and seen as a French literary movement associated with Gustave Flaubert, Edmond and Jules Goncourt, Emile Zola, and Guy de Maupassant. It daringly opened up the seamy underside of society and such topics as divorce, sex, adultery, poverty, and crime. Naturalism flourished as Americans became urbanized and aware of the importance of large economic and social forces. By 1890, the frontier was declared officially closed. Most Americans resided in towns, and business dominated even remote farmsteads.