Analysis Of Eva As A Financial Performance Measure

2136 words - 9 pages

Analysis of EVA as a financial performance measure

The last two decades have experienced significant changes in the way companies implement their goals and measure the effectiveness of the strategy. Top managers are under pressure of capital markets to generate greater than ever profits for the firm by undertaking right evaluation metrics. So, different significant factors like advancements in capital markets, information technology and, generally, globalization has led to appearance of the new notion in companies. (Yong, p.5) Creation of wealth for shareholders has become the key concept for the firm to be efficient and competitive in the market. In this case, this essay will focus on ...view middle of the document...

Now, it becomes clear the top management needs to practice different approaches to implement their strategies if they want to succeed and generate value for the business. As the financial metrics needs to evaluate the strategic objectives of the firm, the right strategy needs to be firstly identified. Porter argues in most of his works that there is often a wrong interpretation of what the strategy of the firms should be, in the context of modern market. In his works he shows that the strategy is shaped by five competitive forces, which constitute not just of the narrow component of rivals, but also includes new entrants, suppliers, buyers and substitutes. To have a nice strategy, in this case, Porter claims, the company should identify the industry structure in which it works, so that strategic importance of industry attributes can be investigated through the lens of the five forces. This is essential to have a good forecast of the future of the firm, to recognize the potential strengths and weaknesses of the projects. According to Kaplan it is crucial to have the right tactics to evaluate the implementation of the strategy.
In this way, the Balanced scorecard performance measurement framework was introduced by Kaplan and Norton, which helps to identify the clear objectives of the business after the overall strategy is clearly understood. It captures a number of financial and non-financial measures, and each can be categorized into four perspectives such as customers, internal process, learning and innovations and financial performance, with two to five measures under each category (Kaplan, 1996). Clearly, EVA is one of the financial metrics which can be used to evaluate financial aspect of the strategy, so that it can be balanced by Balanced Scorecard method with other non-financial aspects. Consequently, the strategy is the most essential to be identified unmistakably, as all the businesses use varying performance measure depending on the strategy they have chosen.

Economic Value Added is one of the financial metrics, which is used to monitor the results of the companies’ strategy, in terms of the profits it created. This value is based on three elements and can be calculated by subtracting the product of the investments in assets and weighted average cost of capital from the net operating profit after taxes. It states that the return on any given investment of capital must be larger than the incurred cost of this capital.
Being introduced and later trademarked by Stern Stewart, this technique has gained much of the significance and discussion in press during the latest decades as innovative and non-traditional one. But what is that is so special about it that attracts so much attention?
Obviously, this idea is not new, as its underlying concept is same as that of the residual income. The feature which distinguishes EVA from RI is that it does not conform to the conventional accounting standards introduced by GAAP (generally accepted...

Other Papers Like Analysis of Eva as a Financial Performance Measure

Analysis Of Financial Report

2731 words - 11 pages Assignment on Title: Measurement of Comparative Performance of AB Bank and Douch Bangla Bank Ltd. Bank Profile AB Bank Ltd. MISION: "To be the best performing bank in the country" Vision: "To be the trendsetter for innovative banking with excellence & perfection" Objectives of the Bank: To exceed customer expectations through innovative financial products & services and establish a strong presence to

Analysis Of The Smartphone As A System

592 words - 3 pages Analysis of the smartphone as a system using knowledge on methods of System Analysis Smartphone A smartphone or smart phone is a mobile phone with an advanced mobile operating system which combines features of a personal computer operating system with other features useful for mobile or handheld use. In addition to a Smartphone’s communication functions, it can: * Send emails. * Use GPS to locate an address and keep you from getting

Ducommun Incorporated - a Financial Analysis

972 words - 4 pages DUCOMMUN INCORPORATED - A FINANCIAL ANALYSIS Ana Miramontes Keller Graduate School of Management Securities Analysis FIN560 Professor Kasthuri Henry June 15, 2013 DUCOMMUN INCORPORATED - A FINANCIAL ANALYSIS Charles Ducommun settled in California during the Gold Rush, he never would have imagined the impact this move would make his future and the future of investors in the stock market. According to Ducommun Incorporated’s website

Faulkner's Light in August - The Measure of a Man

1214 words - 5 pages "Light in August": The Measure of a Man         One of the most influential people in the world during the past two thousand years may be surprising to some people. He is the center of controversy after controversy; nations have risen and fallen because of his name. Year after year, men and women are persecuted and killed because of their devotion to a man who walked this earth before any of them can even trace their ancestry, Jesus Christ

Monitor the Financial Performance of Privately Owned Business

1584 words - 7 pages audit makes qualifying statements on its validity. At the same time, the audit handles interim financial statement data and can adjust it. HRSA/BPHC evaluates the financial performance of grantees by audit data. As the second measure, “the financial statements of a firm represent the usual starting point for any assessment of financial performance. In particular, a valuation of a firm begins with a review of its current financial condition and

Financial Statement Analysis of Gsk

4799 words - 20 pages Bangladesh Ltd. In the next part, I have discussed my findings about the financial performance of GlaxoSmithKline Bangladesh Ltd and based on the findings I have given some recommendations that will help GSK to strengthen their financial base more. Lastly I have come with a brief conclusion and then presented appendix and necessary references. We tried our best to prepare this report. We feel proud to analysis this issue and we learn many things on

Financial Ratio Analysis of Colgate

2595 words - 11 pages logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspect of a business firm. Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial

Financial Analysis of Apple Company

1004 words - 5 pages Siraj Aburokba Susan Robertson Accounting 1A April 30 2014 Financial Analysis Apple I am not a huge fan of Apple products, although I am a big fan of their company. No matter what you read in the press or business press about Apple the fundamental business strategy at Apple is a financial one. Apple’s fundamental strategy is to squeeze as much profit possible from every sale it makes. Apple’s financial strategy is to maximize , a

Financial Analysis of Wyeth Pharma

4070 words - 17 pages FINANCIAL ANALYSIS OF WYETH PAKISTAN LIMITED By: OZAIR ARSHAD INDEX 1. Introduction 2. History and Profile 3. Key Activities of Wyeth 4. Wyeth Products Profile 5. Data Collection & Market Assessment 6. Main Competitors 7. Share Price in Last 12 Months 8. Shareholding Pattern 9. The Director’s Report 10.The Auditor’s Report 11.Financial Ratios & Analysis 12. Horizontal Analysis a) Income Statement b)Balance Sheet 13. Vertical Analysis a

Financial Analysis of Alcoa Incorporated

5945 words - 24 pages Investment Survey analyst, Frederick Harris, has a positive opinion about Alcoa’s future performance. In his opinion, he explained that as more third world nations undergo industrialization, the demand for lightweight metal ought to rise at a decent rate, and Alcoa stands to be a major beneficiary from the trend (Frederick Harris, 2010, pp. 1563). Besides, the quarterly reports of the 2010 financial year show positive results with the soaring

Analysis Financial Statement of Company

2282 words - 10 pages Financial Statement Analysis Paper Example 1: Dell Computer Dell Inc. Income Statement Revenue Cost of Goods Sold Gross Profit R&D Selling General & Administrative Non Recurring Others Operating Income Depreciation Expense Other Income/Expense EBIT Interest Expense Tax Expense Income from Cont Operations Net Income Balance Sheet Cash Short Term Investments Accounts Receivable Inventory Other Current Assets Total Current Assets Long Term

Related Essays

The Strange Situation As A Measure Of Attachment Type

557 words - 3 pages . Attachments to mothers and fathers have been proven to be independent – Main and Weston (1981) found that children reacted differently depending on which parent they were with. This shows that the attachment types shown by the Strange Situation are based on qualities of distinct relationships as opposed to a child’s characteristics. The Strange Situation places infants into one of three categories, however Main and Solomon

Financial Performance Of Grameenphone Essay

6613 words - 27 pages from this internship program. I would like to gratitude you for giving me such a great job and opportunity to prove my ability in making a quality report. If any mistakes remain I am heartily apologized for those. I hope you will take my mistakes forgivingly. Sincerely yours, Shafi, Hasibuzzaman 08-11124-2 LETTER OF ENDORSEMENT The Internship Report entitled on “Financial Performance Analysis of

Personal Values A Measure Of Personal Development

574 words - 3 pages Inventory self assessment is used to gain better understanding of one’s ethical perspective. The results from the self assessment showed that my ethical perspective is most related to obligation and is least related to equity. According to (2008), [Obligation is defined as the action of constraining oneself by oath, promise, or contract to a particular course of action; a mutually binding agreement. Also: the course of action to which one

Analysis Of Financial Statement

4903 words - 20 pages selection of the company had come across a certain criteria which are that the company should not be some financial service provider and it should be listed under FTSE. Now FTSE is share price index and it is the subsidiary group of the London Stock Exchange. The stock indices of it are widely used by the world and also the analytical firms as well (Ohlson, 2000). So the stock indices are particular thing that can measure the high