Why EVA is better than ROI (ROCE, ROIC, RONA, ROA) and earnings, operating profit etc. Equity investors should earn on their capital a return far over risk-free interest rate in order to induce and maintain capital in the company Therefore earnings should always be judged against the capital used to produce these earnings Earnings can be easily increased simultaneously worsening the position of shareholders e.g. if more capital is poured into a company although the return on capital is 5% or less
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CFO OF SUNTAL LTD FROM: GAJEN DATE: 22 APRIL 2011 SUBJECT: INTRODUCING EVA Economic Value Added (EVA) is a measurement tool that provides a clear picture of whether a business is creating or destroying shareholder wealth. EVA measures the firm’s ability to earn more than the true cost of capital. EVA combines the concept of residual income with the idea that all capital has a cost, which means that it is a measure of the profit that
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Measurement and Decision Making March 2010 What is the ROI for MIP based on original estimates? • Operating assets ( development costs were $140 million • Sales ( annual operating income was expected to be approximately $25 million ROI for MIP = 25 million / 140 million = .18% What is the ROI if Richard Lawrence’s new revenue projects are used? • likely generate operating income of just $17.5 million per year ROI for MIP with new figures = 17.5 million / 140 million
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International Financial Management Case Analysis of: The Continuing Transformation of Asahi Glass: Implementing EVA TABLE OF CONTENTS * BACKGROUND * CORPORATE GOVERNANCE * FEATURES IN ASIA * MAIN BANK * ORGANIZATIONAL CHANGE * IMPLEMENTING EVA 1. ADVANTAGES 2. DISADVANTAGES * PREFERENCE TO EVA * RECOMMENDATION Background Asahi Glass is an MNC, based in japan. Its products include flat glass, chemicals, and electronics
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Week 5 Assignment from the textbook Nancy Schwartz ACC/400 February 22, 2016 Lee Kroll E25.4 Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown below. The company’s weighted-average cost of capital is 12 percent. Note: Economic Value Added (EVA) (p. 1087) A specific type of residual income that is computed by multiplying the after-tax weighted average cost of capital by
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Quality Metal Service Center Case Analysis Company History Quality Metal Service Center was established in the late 1800s as a local metals distribution center. By 1992, it had grown into a national metal distribution company operating in four geographic regions-each of which contained about six districts. The company had experienced rapid sales growth along with the geographic expansion since the 1920s. In 1991, Quality Metal posted sales in excess of $750 million. In March, 1992, the
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FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS By Evanti Firstadea (105020307121003) Rosyida Mardyana (105020307121011) University of Brawijaya Economics and Business Faculty Accounting Major FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS INTRODUCTION The primary objective of for-profit organizations is to maximize shareholder (or owner) value, or firm value for short. Thus, the results-control ideal would be to reward each individual employee for doing what s/he does to increase
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receivable balance on June 30 of a. $37,800 (90,000x0.1 (receivables from May sales) + 72,000x0.4 (receivables from June sales)). b. $42,000. c. $32,000. d. $28,800. 2. Which of the following changes would NOT change return on investment (ROI)? a. Decrease sales and expenses by the same percentage. b. Increase total assets. c. Increase sales dollars by the same amount as total assets. d. Decrease sales and expenses by the same dollar amount. 3. Beta Division had the following
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Week 5 Individual Assignment Travis St. Denis ACC 400 April 24, 2016 Joseph Poletti Exercise 25.4 Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown below. The company’s weighted-average cost of capital is 12 percent. Division A Division B Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000,000
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Management Control System Notes Ch. 1 – The Nature of MCS Simons Levers of Control Belief systems: empower individuals and encourage them to search for new opportunities. They communicate core values and inspire all participants to commit to the organization’s purpose. COMMITMENT Boundary systems: establish the rules of the game and identify actions and pitfalls that employees must avoid. PUNISHMENT Diagnostic controls systems: allow managers to ensure that important goals are being achieved
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