...under control and maintain profitability. 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 performance factor are common metrics and its calculation is likely a weighted average of these factors. The bad * With respect to the valuation of equity securities of a private firm, the American Institute of Certified Public Accountants has established guidelines for private firms using stock-based compensation plans to derive market value of equity. The guideline recommends three approaches: a market or relative valuation approach; an income or DCF-based approach; and, an asset replacement cost approach. Instead of hiring a third-party valuation specialist, or using this guideline themselves, Braddock management estimated the market value of equity by multiplying the book value per share (BVPS) by a...
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...CASE STUDY FOR FINANCIAL MANAGEMENT CASE 4: The Battle for Value, 2004: FedEx Corp. vs. United Parcel Service, Inc. VALUE CREATION AND ECONOMIC PROFIT 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, serving 220 Chinese cities, so the company’s volumes in China had grown by more than 50% between 2003 and 2004. UPS which is the world’s largest package-delivery company and dominant parcel carrier in US, serving 200 cities in 2003. FedEx had virtually invented customer logistical management, and was widely perceived as innovative. Historically, UPS had reputation for being big, bureaucratic and an industry follower. Two companies have their own market, an individual characteristics, and inconclusive. Thus, not only based on the development and operation of the two companies, the analysis also relied on the special purpose financial ratios ( especially Economic Value Added (EVA), an effective measure and rapid for firm within an industry) to find which company has more competitive advantage. II. INTRODUCTION 1. FedEx corporation: [pic] FedEx, formally known as Federal Express, started delivering packages and freight on April 17, 1973. The company was...
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...In corporate finance, Economic Value Added or EVA, a registered trademark of Stern Stewart & Co., is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm's capital. The idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital; see Corporate finance: working capital management. This amount can be determined by making adjustments to GAAP accounting. There are potentially over 160 adjustments that could be made but in practice only five or seven key ones are made, depending on the company and the industry it competes in. NOPAT is profits derived from a company’s operations after cash taxes but before financing costs and non-cash bookkeeping entries. It is the total pool of profits available to provide a cash return to those who provide capital to the firm. Capital is the amount of cash invested in the business, net of depreciation. It can be calculated as the sum of interest-bearing debt and equity or as the sum of net assets less non-interest-bearing current liabilities (NIBCLs). The capital charge is the cash flow required to compensate investors for the riskiness of the business given the amount of economic capital invested. The cost of capital is the minimum rate of return on capital required to compensate investors...
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...shareholder’s benefit – this is very critical as business should be able to bring value to people who finance it, as they put in capital as part of the risk they take to be able to sustain the business. It is also important to take into consideration the value it should bring to its customers and employees as well as business partners up and down the supply and distribution chain referred to as stakeholders from CAM article. And while it’s important to calculate for EVA (Economic Value Added), it is equally important to also measure a business value to stakeholder in the form of its corporate and social responsibility (CSR). I agree with Mr Mansibang’s statement that stakeholder value can be achieved only if it is embedded as part of corporate life or part of the business’ DNA - a non-negotiable strategy with internal processes making way for more effective accountability, transparency and responsibility. Last statement is very true as it puts on a challenge of not just complying with the rules and that it is just not about being legal – but being ethical and moral as well. Yes, it’s important that primarily business are gaining profits so that it can be sustained. But once needed profit is achieved business should be able to bring back something to the community to which they operate on and earning business with. It is also important that employees, one of the key stakeholders, are getting value out of doing business with the company they are employed to – not just financially...
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...Team 7 from afternoon class 2012159 2012171 2012161 2012112 2012118 2012170 Ans. To Q1. Economic Value added (EVA) is a financial performance method to calculate the true economic profit of a corporation. EVA can be calculated as Net Operating Profit After Tax minus a charge for the opportunity cost of the capital invested. EVA is an estimate of the amount that earnings differ from the required minimum rate of return for shareholders or lenders. The difference can be both a surplus and a shortage. Ans. To Q2. Tax is demonstrated by using capital charge, or WACC which refers to a cost before tax and taxed PBIT. It is of the existing accounting and financial reporting systems of companies. The disadvantages are that accounting profits and book asset values may be untrue and managers may somehow prefer projects with high short-run EVA to longer-term projects. Ans: to Q3 Balance Sheet Side | | Short-term debt (8%) | 27,300 | Long-term debt (10%) | 98,744 | Total debt and leases | 126,044 | | | Common equity | 413,065 | | | Plus: equity equivalents | | Accumulated goodwill amortization | 21,000 | LIFO reserve | 3,613 | R&D expense | 467,371 | R&D expense amortized | 9,622 | Deferred income taxes | 6,784 | Sum of equity equivalents | 508,390 | | | Adjusted common equity...
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...the specific outcome can be measured. These include measurable facts and figures such as sales quotas or profit objectives. For example, a firm might tell its sales staff that it needs to sell 20% more than last year's figure or it might tell its operations managers that costs need to be reduced by 10% over last year's figure. Input controls include employee skills, motivation and knowledge. Hiring an individual with the necessary education and job skills to perform in a position is an input control. Additionally, there are several primary measures of corporate performance. Financial measures include return on investment (ROI), earnings per share (EPS), and operating cash flow. Shareholder measures include market value added (MVA) and economic value added (EVA). DQ 2 What methods would you consider to measure organizational performance? •SWOT Analysis- used to evaluate the company's strengths, weaknesses, opportunities, and threats. This measures the organization's present state and its potential. •Market Research- this research can be done through focus groups, surveys and personal interviews. If a company is meeting consumers' needs means it's generally performing well. •Strategic...
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...The goal of all companies is to create value for the shareholder. But how is value measured? Wouldn't it be nice if there were a simple formula to figure out whether a company is creating wealth? A growing number of analysts and consultants think there is an answer. Like many economic formulas, the measure - economic value added (EVA) - is both intriguingly clever and maddeningly deceptive. Does EVA simplify the task of finding value-generating companies or does it just muddy the waters? What Is EVA? EVA is a performance metric that calculates the creation of shareholder value, but it distinguishes itself from traditional financial performance metrics such as net profit and earnings per share (EPS). EVA is the calculation of what profits remain after the costs of a company's capital - both debt and equity - are deducted from operating profit. The idea is simple but rigorous: true profit should account for the cost of capital. To understand the difference between EVA and its older cousin, net income, let's use an example based on a hypothetical company, Ray's House of Crockery. Ray's earned $100,000 on a capital base of $1 million thanks to big sales of stew pots. Traditional accounting metrics suggest that Ray is doing a good job. His company offers a return on capital of 10%. However, Ray's has only been operating for a year, and the market for stew pots still carries significant uncertainty and risk. Debt obligations plus the required return that investors demand for...
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...Abstract Economic Value Added (EVA) is a value based performance measure that gives importance on value creation by the management for the owners. Profit maximization as a concept is age-old, wealth maximization is matured and value maximization is today’s wisdom. Stern Stewart’s EVA raises storm in corporate world and gives a new way to think about rewarding management. Usability of EVA largely depends on the quality of accounting information system, as traditional information system will not provide sufficient information to compute true EVA. Thus, EVA is required to be tailored in line with accounting system, management philosophy and the degree of demand of such a system. In this paper, an earnest effort has been made to explain theoretical foundation of EVA with its origination, definition, ways to make it tailored, adjustments required, scope and some other related issues. The methodology used is a type of theoretical mining of logics resulting a step-by-step process required for EVA implementation. As corporate house plans to move from traditional to value based performance measures, EVA would yield good result and the paper may become helpful to them to comprehend the methodology. Keywords: Value Based Performance Measure, Tailored EVA, Residual Income (RI), Accounting Distortions, Shareholders’ Value, Value Based Measure, Market Value Added, True EVA 1. Introduction Economic Value Added (EVA) is the financial performance measure that comes closer than any...
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...Under the framework of VBM, economic value added (EVA) is one of the approaches to measure the value-creating performance of business units and managers. 1) Do you think that EVA can be 'used' by company managers to actually improve performance? YES Accounting measures more often produces historical data or distorted data that may have no relation with the real status of the company. But, EVA goes for adjustments to accounting data to make it economically viable. EVA is able to improve the performance of business unit or managers. For example, R&D normally classified as expense under accounting standard unless it meet several extremely requirements, then expense can be capitalized. Under EVA approach, R&D expense added back to the NOPAT which encourage managers innovation mind since the cost of innovation will not considered as a distortion of performance measurement as long as R&D will bring in the economic benefit in the future. The real life example would be James Hardie, he introduced EVA to its operation in 1996 and made a great success by doing that. We have to notice that, EVA performance measurement is a financing measurement, it must link to employees’ compensation and inventive payment system NO EVA is a single period measurement approach which discourages managers to undertake long term profitable project. Compare to ROI, ROI maximizing rate of return but not necessarily maximize the return for shareholders. 2) Companies should be required...
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...the relationship between Free Cash Flow (from now on refer as FCF), Economic Value Added (from now on refer as EVA) and Market Value Added (from now on refer as MVA), specifically whether a company with high FCF also have high EVA and MVA. Explanation using empirical evidence is also needed to support my reasoning and arguments. Therefore, in order to complete this assignment, I have used a few types of references which are financial management reference books, journals, articles from Fortune magazine and set-up an interview with Mr. Amiruddin b. Abdul Shukor which is the Chief Financial Officer (CFO) for Nationwide Express Courier Services Berhad. Throughout his career, he had worked in Permodalan Nasional Berhad (PNB), Permodalan Terengganu Berhad (PTB), Securities Comission Malaysia (SC) and Malaysian Industrial Development Finance Berhad (MIDF). An interview session was set with him on 2/12/2011 at his office in the headquarters of Nationwide Express Courier Services Berhad in Shah Alam, Selangor. 2.0 FINDINGS 2.1 Free Cash Flow In definition, FCF is the cash flow actually available for distribution for investors after the company has made all the investment in fixed assets and working capital necessary to sustain ongoing operations (Brigham & Ehrhardt, 2005). Basically, the formula for FCF is as follows: In the investors’ perspective, positive value of FCF is more favorable than negative value because it means that the company has high expectancy of generating...
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...Chinese people proud of the rapid development over the past decade. However, there are still a large quantity of people in China or even in the world that know nothing about GDP. Moreover, still many people do not fully understand the real meaning of GDP even they have heard about this economic term before. GDP per capita is often considered an indicator of a country's standard of living whereas there are limitations and criticisms against the belief that GDP measures a country’s living standard. Many economists (for example, who? Add sources) argue that GDP is an empty abstraction devoid of any link to the real world, and, therefore, has little or no value in economic analysis. Many environmentalists (for example, who? Add sources) argue that GDP is a poor measure of social progress because it does not take harm to the environment into account. Thus, it is important to find out the real meaning of GDP and its value to economic analysis. II. Statement of the problem First , this report intends to find out the standard definition of GDP as well as the measurement of GDP. the definition of GDP will be divided into seven parts in order to study the measurement of GDP more easily. They are “the market value”, ”of all”, ”final”, ”goods and services”, ”produced”, ”within a country”, “in a given period of time”. Then we will talk about the components of GDP, especially the U.S GDP,...
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...THE ECONOMICS OF PROPERTY AND CONSTRUCTION Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name (24, March, 2012) THE ECONOMICS OF PROPERTY AND CONSTRUCTION Real estate development has been the center of attraction for new investors. In the late 20th century, businesses have been expanding rapidly. This led to an increased demand of office space and property for business development and expansion. The expansion of the business sector was driven by the dire demand of goods and services by increasing world population. With increased population, firms were forced to invest more on their producing plants. This was meant to cater the increasing level of demand. Subsequently, in addressing the market demand, firms were called to employ more personnel to aid in its production. This led to the demand of the tertiary employees who were to inject their expertise in production to ensure quality and quantity products were developed. Employing additional staff meant increased demand of office space. Property developers were therefore called in to address the emerging demand for new office spaces. In addition, the demand for additional office space was also necessitated by the 20th century market liberalization and subsequent globalization. Globalization encouraged the movement of firms from their traditional locations i.e. mother countries to other nations. These relocations came with an increase in demand for both manpower and office...
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...Chai Har Lee, Multimedia University, Jalan Ayer Keroh Lama, 75450 Bukit Beruang, Melaka, Malaysia. Tel: 60-123-633-730. E-mail: chaiharlee@gmail.com Received: March 21, 2012 doi:10.5539/ijbm.v7n13p94 Accepted: June 15, 2012 Published: July 1, 2012 URL: http://dx.doi.org/10.5539/ijbm.v7n13p94 Abstract Advertising is a growing business and with advances in the Internet technology, the dynamics and landscape of the business has changed as well. Prior findings on consumers’ attitude towards advertising are mixed. This paper is an attempt to examine young adults’ attitude towards advertising. We conceptualized a framework to examine the influence of six independent variables namely consumer manipulation, product information, hedonic/pleasure, economic condition, social integration, and materialism on consumers’ attitude towards advertising. Participants were selected from the southern region of Malaysia. The data were collected through personal administration, and had 217 valid responses. The analysis reveals that four of the six hypotheses were supported. Consumer manipulation emerged negative, which is consistent with past findings. These findings would enable practitioners to be more consumer-sensitive to ensure that the advertising campaigns are properly conceived to avoid adverse effects on a firm’s performance. The findings would also benefit consumers in gaining additional understanding on the roles of social networks in persuading specific purchase. This paper also contributes...
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...situation and a weigh his or her options. In addition, a home comes with some serious consequences if the owner cannot meet the terms of the agreement. Every person looking to purchase a home will be different; however, they face the same challenges in this economy and the same reasoning. I believe a person should be educated on purchasing a home and know his or her options. Knowing all options that are available is important because it can possible reduce, the output a person has to pay. For example, there are first time buyer programs. HUD options, and loan types (fixed or an adjustable rate mortgage). Being educated about purchasing a home can make a difference between a good loan and a bad one, receiving the best rate and being happy with the purchase. Once the person analyzes his or her situation a decision to purchase a home can be made. The reward to owning a home is accomplishment; however there are consequences that a person must face if he or she does not make their mortgage payment. When a person makes a decision to purchase and have done the necessary steps to take ownership, there is no second guessing his or her decision at that point. The economy plays an important role in purchasing a home. The number of companies closing is on the rise so is the number if lay-offs. In addition there are a drastic number of foreclosures and people not able to make their mortgage payments and the dramatic decline in the value of homes. The...
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...Zimbabwe Agenda for Sustainable Socio-Economic Transformation’s four pillars and how it is linked wage rate determination. The government of Zimbabwe in an attempt to accelerate economic growth and wealth creation postulated the Zim-Asset. Our country experienced a deteriorating economic and social social environment since 2000 which was caused by economic sanctions imposed by the western countries. These sanctions lead to a deep economic and social crisis which was characterized by high levels of inflation and low industrial capacity utilization that lead to an overall decline of the gross domestic product by a percentage of 50%in 2008. Zim-Asset was developed through consultative process which involve political leaders in the ruling ZANU PF, government, and private sector and other stakeholders. The main focus of it is on the full exploitation and value addition to the country’s own abundant resources with the vision “Towards an empowered society and a growing economy” and the mission “To provide an enabling environment for sustainable economic empowerment and social transformation to the people of Zimbabwe”. The government focuses on promoting equitable development and prosperity for all Zimbabweans whilst leveraging own resources and also ensure sustainable growth and development of the economy by, among other things engendering unity of purpose among the different stakeholders. The four pillars of the policy include the following: * Food security This will aid through...
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