economic value added

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• Economic Value Added https://store.theartofservice.com/the-economic-value-added- toolkit.html

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Page 1: Economic Value Added

• Economic Value Added

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 2: Economic Value Added

Cost accounting Integrating EVA and Process Based Costing

1 Recently, Mocciaro Li Destri, Picone & Minà (2012). proposed a performance and cost measurement system that integrates the

Economic Value Added criteria with Process Based Costing (PBC). The EVA-PBC

methodology allows us to implement the EVA management logic not only at the firm level, but also at lower levels of the organization. EVA-PBC methodology plays an interesting role in bringing strategy back into financial

performance measures.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 3: Economic Value Added

Sustainable development - Business case

1 This eco-efficiency is usually calculated as the economic value added by a firm in relation to its aggregated ecological impact

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 4: Economic Value Added

Business value

1 Business value expands concept of value of the firm beyond economic

value (also known as economic profit, economic value added, and shareholder value) to include other forms of value such as employee value, customer value, supplier

value, channel partner value, alliance partner value, managerial value, and

societal valuehttps://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 5: Economic Value Added

Total cost of ownership - Use of concept

1 TCO, when incorporated in any financial benefit analysis, provides a cost basis for determining the total economic value of an investment.

Examples include: return on investment, internal rate of return, economic value added, return on information technology, and rapid

economic justification.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 6: Economic Value Added

Outline of finance - Equity valuation

1 * Economic value added

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 7: Economic Value Added

Outline of finance - Discounted cash flow valuation

1 ** Market value added / Economic value added

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 8: Economic Value Added

Business performance management - Methodologies

1 Various methodologies for implementing business performance management exist. The discipline gives companies a top-down framework by which to align planning and

execution, strategy and tactics, and business-unit and enterprise objectives. Reactions may

include the Six Sigma strategy, balanced scorecard, activity-based costing (ABC), Total Quality Management, Economic value added|

economic value-add, integrated strategic measurement and Theory of Constraints.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 9: Economic Value Added

Organizational performance

1 performance (profits, return on assets, return on investment, etc.); (b) product

market performance (sales, market share, etc.); and (c) shareholder return

(total shareholder return, economic value added, etc.).Richard et al. (2009):

Measuring Organizational Performance: Towards Methodological Best Practice.

Journal of Management. The term Organizational effectiveness is broader.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 10: Economic Value Added

Whole-life cost - IT industry usage

1 When incorporated in any financial benefit analysis (e.g., Return on investment|ROI, Internal rate of

return|IRR, Economic value added|EVA, Return on information

technology|ROIT, Rapid economic justification|RJE) TCO provides a cost basis for determining the economic

value of that investment.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 11: Economic Value Added

Corporate finance - Investment and project valuation

1 Alternatives (complements) to NPV include Residual Income Valuation,

Market value added|MVA / Economic value added|EVA (Joel Stern, Stern Stewart Co) and Adjusted present

value|APV (Stewart Myers)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 12: Economic Value Added

Corporate finance - Working capital management

1 In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital; See

Economic value added (EVA)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 13: Economic Value Added

Profit (accounting) - Definition

1 There are analysts who see the benefit in making adjustments to economic profit such as eliminating the effect of amortized goodwill or

capitalizing expenditure on brand advertising to show its value over multiple accounting periods. The underlying concept was first introduced by Schmalenbach, but the commercial application of the concept of adjusted economic profit was by Stern Stewart Co. which has trade-marked their adjusted economic profit as 'Economic

Value Added' (EVA).

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 14: Economic Value Added

Activity-based costing - Prevalence

1 Following initial enthusiasm, ABC lost ground in the 1990s, to alternative metrics, such as Kaplan's balanced

scorecard and economic value added

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Page 15: Economic Value Added

Economic value added

1 In corporate finance, 'Economic Value Added' ('EVA'), is an estimate of a firm's economic profit – being the

value created in excess of the Required rate of return|required

return of the types of companies|company's investors (being

shareholders and debt holders)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 16: Economic Value Added

Economic value added - Relationship to market value added

1 The firm's market value added, or MVA, is the discounted sum (present

value) of all future expected economic value added:

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 17: Economic Value Added

Working capital management

1 In so doing, firm value is enhanced when, and if, the return on capital exceeds the cost of capital; See

Economic value added (EVA)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 18: Economic Value Added

Accounting reform - Business

1 Limited reforms within professional management circles have led in the

past to activity-based costing, economic value added, and risk

measures.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 19: Economic Value Added

Working capital - Decision criteria

1 See economic value added (EVA).

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 20: Economic Value Added

List of business theorists - S

1 * Eugen Schmalenbach – economic value added

(1920s–?)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 21: Economic Value Added

List of business theorists - S

1 * Joel Stern – economic value added (1980s)

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 22: Economic Value Added

Market value added - Basic formula

1 MVA is the present value of a series of Economic value added|EVA values.

MVA is economically equivalent to the traditional Net present value|NPV measure of worth for evaluating an

after-tax cash flow profile of a project if the cost of capital is used for

discounting.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 23: Economic Value Added

Residual income valuation

1 The approach is largely analogous to the economic value added|EVA / Market value added|MVA based approach, with similar logic and

advantages

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Page 24: Economic Value Added

Residual income valuation - Comparison with other valuation methods

1 Although EVA is similar to residual income, there will be technical differences between EVA and RI, specifically Stern Stewart Co, originators of

EVA, recommend a fairly large number of adjustments to NOPAT before the methodology

may be applied.[http://maaw.info/Chapter14.htm][http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91309816] See

Economic_value_added#Comparison_with_other_approaches|Economic value added# Comparison with other approaches.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 25: Economic Value Added

Interbrand - Methodology

1 Interbrand has refined its brand valuation into a five-step Economic Value Added

methodology

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Page 26: Economic Value Added

EVM

1 * Economic value management; see economic value

added

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Page 27: Economic Value Added

Risk adjusted return on capital - Basic formula

1 For risk management purposes, the main goal of allocating capital to individual

business units is to determine the bank's optimal capital structure—that is

economic capital allocation is closely correlated with individual business risk.

As a performance evaluation tool, it allows banks to assign capital to

business units based on the economic value added of each unit.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 28: Economic Value Added

Added value - Other consultancy measures

1 *Economic Value Added

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Page 29: Economic Value Added

NOPAT

1 NOPAT is frequently used in calculations of Economic value added and Free cash flow.

https://store.theartofservice.com/the-economic-value-added-toolkit.html

Page 30: Economic Value Added

NOPLAT

1 NOPLAT minus the monetary cost of all capital (both equity and debt) equals economic profit, which is quite similar to the trademarked

Economic value added|EVA model.

https://store.theartofservice.com/the-economic-value-added-toolkit.html