Eva Ppt

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WELCOME

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WHAT IS EVATM ? Most successful performance metric Popularity is a result of able marketing and

deployment by STERN STEWART, owner of the trademark EVA is a measure of financial performance based

on the context that all capital has a cost and that earning more than the cost of capital creates value for shareholders. 10

ECONOMIC VALUE ADDED:  Registered trademark of Stern Stewart & Co. of

New York City ( USA)  “QUEST OF VALUE”-Term EVA with a symbol TM as super script was used.  EVA is a trademark of Stern Stewart & Co. is a specific method of calculating economic profit.  Peter Drucker discussed EVA “MANAGING FOR RESULTS”  Concept was popular after Stern Stewart & Co. marketed it. 11

 Increasingly popular corporate performance

measure and that is often used by co’s to evaluate performance “EASTON,P.HARRIS,T AND OHLSON,J”

 Enables the direct alignment of management

and shareholders interest- “RICE,V.A.”

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UNDERSTANDING EVA AND ITS COMPONENTS

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COMPONENTS OF EVA:

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EVA: A FLOW CHART

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Measure of wealth a company has created

for its investors Cumulative measure of corporate performance Primary objective of co.- Maximizing MVA

MVA = [(Shares outstanding x Stock price) + Market

value of preferred stock + Market value of debt] – Total capital 16

EVA V/S MVA ECONOMIC VALUE ADDED

MARKET VALUE ADDED

Attempts to measure the true economic profit produced by a company

Diff between –current market value of company & capital contributed by investors.

Performance metric

Wealth metric

Useful for investors-determine the Improves the book value of the company value company shares

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The difference between the present value of cash

inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. ECONOMIC VALUE ADDED

NET PRESENT VALUE

Benett Stewart-to measure the value of the firm

Peccati - decomposition of the NPV of a financial project.

More immediateness and Less immediateness and incisiveness incisiveness Accounting figures

 Market values 18

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CHANGING ORGANISATIONAL BEHAVIOR GENERATES SUFFICIENT CASH TO REINVEST SUSTAINABLE GROWTH PHARMACEUTICAL MARKET PLACE EVA LINKED COMPENASATION( TCS) PROFIT PRUNING

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FORTUNE magazine has called EVA “today’s hottest idea”. Peter F. Drucker commented in HBR:

EVA measures “total factor productivity”.

A look at the performance of the new economy companies

would perhaps vindicate the comments well.

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ACKNOWLEDGEMENT IN HUL REPORT Traditional approach to measuring ‘shareholders’ value

creation’ have used parameters such as earnings capitalization, market capitalization and present value of estimated future cashflows. Extensive new research has now established that it is not earnings per se, but VALUE that is important. A new measure called ‘Economic value Added’(EVA) is increasingly being applied to understand and evaluate financial performance.

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APPLICATION IN HUL: HUL.xls

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EVA AND HUL

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CHRONOLOGY OF EVA GROWTH:HUL

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CONCLUSION we can definitely say that EVA™ has emerged as a

powerful conceptual framework and is practically implemented in most of successful corporations across globe. Which incorporates balance sheet data into an adjusted income statement metric which works best for companies whose tangible assets (assets on the balance sheet) correlate with the market value of assets - as is often the case with mature industrial companies. 

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