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Vishal Wadekar
Vishal Wadekar
Économie & financeBusiness
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Economic Value Added (EVA) Presented by: NEEL BHAVIK AMIT VINIT
Introduction of EVA ,[object Object],[object Object],[object Object],[object Object]
Definition for EVA ,[object Object],[object Object],EVA Net operating profit Taxes Cost of capital
Calculating Net Operating After Tax (NOPAT) ,[object Object],[object Object],2,02,000/- NOPAT 1,34,000/- Taxes (-) 3,36,000/- Operating Profit 4,00,000/- Selling, general & Admin Exp. (-) 7,36,000/- Gross Profit 17,00,000/- Cost of Goods sold (-) 24,36,000/- Sales Amount (Rs.) Particulars
Cost of Capital ,[object Object],[object Object],[object Object],[object Object]
Weighted Average Cost of Capital (WACC) ,[object Object],[object Object],[object Object],14,00,000/- Total Capital 7,00,000/- Total Common Equity 2,00,000/- Preferred Stockholders Equity 5,00,000/- Long Term Debt Amount (Rs.) Particulars
WACC Continue Long Term Debt ,[object Object],9.47% Cost for Bond Financing (9/96 x 100) 9% Interest After Tax (Rs.14 – Rs. 5) 35% (Rs. 5/-) Assumed Tax 14% (Rs. 14/-) Interest Rs. 96/- Net Return ( Deducting discounting & Financing cost) Rs. 100/- Bond
WACC Continue Preferred Stock Cost 11.2% Cost for Preferred Share (11/98 x 100) 11% (Rs. 11/-) Dividend Rs. 98/- Net Revenue (Deducting discount & financing cost) Rs. 100/- Preference Share (Per share)
WACC Continue Common Equity Cost 14.1% Cost for Common Equity (12/85 x 100) Rs. 12/- EPS (Estimated by investors & reliable analyst) Rs. 85/- Net Return (Less issuing cost) Rs. 100/- Share Price (Per Share)
WACC Continue Summarizing 14.1% Common Equity Cost 11.2% Preferred Stock Cost 9.47% Bond Cost
Calculation of WACC for XYZ Company The total Weighted Average Cost of Capital (WACC) = 1,68,478 / 14,00,000 = 12.03% 1,68,475/- - 14,00,000/- Total Capital 98,700/- 14.1 7,00,000/- Common Equity Cost 22,400/- 11.2 2,00,000/- Preferred Stock Cost 47,375/- 9.47 5,00,000/- Long Term Debt Total (Rs.) Cost (%) Amount (Rs.) Particulars
Calculation of EVA for XYZ Company Rs. 21,550/- Economic Value Added (EVA) (Rs. 2,02,000 – Rs. 1,80,450) Rs. 1,80,450/- Capital Charge (12.03/100 x Rs. 15,00,000/-) 12.03% Cost of Capital Rs. 15,00,000/- Capital Employed (Including Rs.1,00,000/- Reserve & Surplus) Rs. 2,02,000/- NOPAT
Strategies for Increasing EVA ,[object Object],[object Object],[object Object],[object Object],[object Object]
Advantages of EVA ,[object Object],[object Object],[object Object],[object Object]
Limitations of EVA ,[object Object],[object Object],[object Object],[object Object]
Conclusion As a performance measure, Economic Value Added forces the organization to make the creation of shareholder value the number one priority. EVA is changing the way managers run their businesses. When business decisions are aligned with the interest of the shareholders, it is only a matter of time before these efforts are reflected in a higher stock price.

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Eva

  • 1. Economic Value Added (EVA) Presented by: NEEL BHAVIK AMIT VINIT
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8. WACC Continue Preferred Stock Cost 11.2% Cost for Preferred Share (11/98 x 100) 11% (Rs. 11/-) Dividend Rs. 98/- Net Revenue (Deducting discount & financing cost) Rs. 100/- Preference Share (Per share)
  • 9. WACC Continue Common Equity Cost 14.1% Cost for Common Equity (12/85 x 100) Rs. 12/- EPS (Estimated by investors & reliable analyst) Rs. 85/- Net Return (Less issuing cost) Rs. 100/- Share Price (Per Share)
  • 10. WACC Continue Summarizing 14.1% Common Equity Cost 11.2% Preferred Stock Cost 9.47% Bond Cost
  • 11. Calculation of WACC for XYZ Company The total Weighted Average Cost of Capital (WACC) = 1,68,478 / 14,00,000 = 12.03% 1,68,475/- - 14,00,000/- Total Capital 98,700/- 14.1 7,00,000/- Common Equity Cost 22,400/- 11.2 2,00,000/- Preferred Stock Cost 47,375/- 9.47 5,00,000/- Long Term Debt Total (Rs.) Cost (%) Amount (Rs.) Particulars
  • 12. Calculation of EVA for XYZ Company Rs. 21,550/- Economic Value Added (EVA) (Rs. 2,02,000 – Rs. 1,80,450) Rs. 1,80,450/- Capital Charge (12.03/100 x Rs. 15,00,000/-) 12.03% Cost of Capital Rs. 15,00,000/- Capital Employed (Including Rs.1,00,000/- Reserve & Surplus) Rs. 2,02,000/- NOPAT
  • 13.
  • 14.
  • 15.
  • 16. Conclusion As a performance measure, Economic Value Added forces the organization to make the creation of shareholder value the number one priority. EVA is changing the way managers run their businesses. When business decisions are aligned with the interest of the shareholders, it is only a matter of time before these efforts are reflected in a higher stock price.