--%>
Assignment Help - homework help

Which parameter good measures value creation

Which parameter good measures value creation; the Economic Value Added (EVA), the CVA (Cash Value Added) or the economic profit?

E

Expert

Verified

The Economic Value Added (EVA) is the profit before interests minus the book value of the company multiplied with the WACC. The Economic Profit (EP) is the net income minus the book value of the shares multiplied with the needed return to equity. The Cash Value Added (CVA) is the profit before interests plus depreciation, minus economic depreciation, minus the cost of the utilized resources.

Fernández (2001) demonstrates that EP, EVA and CVA do not measure value creation in a company for all periods.  These parameters can prove to be of specific usefulness to executives and to the business units while setting objectives, but this does not make any sense to provide the EP, EVA and CVA the meaning of value creation for each period.

   Related Questions in Corporate Finance

  • Q : What is real gross domestic product

    Real gross domestic product: If GDP of a particular year is estimated or evaluated on the basis of the base year prices it is termed as real gross domestic product.

    		•
  • Q : What did better mean specified by

    What did ‘better’ mean specified with Markowitz questioned regarding portfolio selection?

    		•
  • Q : Portfolio return probability XY Company

    XY Company has made a portfolio of such three securities: The correlation coeffic

    		•
  • Q : Determine weighting of shares done and

    When computing the WACC, is the weighting of the shares done and the debt with book values of debt and shareholder’s equity or along with market values?

    		•
  • Q : Problem on implied exchange rate a) The

    a) The Australian firm sold a ship to a Swiss firm and gave the Swiss client an option of paying either AUS10,000 or SF15,000 in 9 months. (i) In above, the Australian firm efficiently gave the Swiss client a free option to buy up

    		•
  • Q : Does value of the company increase when

    According to the valuation method depends on tax shields, the value of the company (Vl) is the value of the unleveraged company (Vu) in addition with the value of tax shields (VTS), thus, the higher the interest and the higher the VTS. Therefore, does

    		•
  • Q : NPV and Other Investment Criteria The

    The XYZ Manufacturing Company is considering the below investment proposal. The initial investment is $100,000. It was an expected economic life of 10 years. The net cash flow in the initial year is expected to be $25,000 and annual net cash flow is expected to develo

    		•
  • Q : Illustrates cost of its equity is zero

    Is this true that the cost of its equity is zero, if a company does not distribute dividends?

    		•
  • Q : Explain the working of breakthrough for

    Explain the working of breakthrough in low-discrepancy sequences used for option valuation.

    		•
  • Q : Illustrates financial consultant has

    A financial consultant obtains various valuations of my company when this discounts the Free Cash Flow (FCF) as opposed to when this uses the Equity Cash Flow. Is it correct?

    		•