--%>
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 : Illustrates reserves are real money or

    The part of the net income which is not distributed to shareholders goes to reserves (to shareholders’ equity). As dividends shows real money, reserves are real money as well. Is it true?

    		•
  • Q : Describe nominal gross domestic product

    Nominal gross domestic product: If GDP of a particular year is estimated on the base of price of similar year, it is termed as nominal GDP.

    		•
  • Q : Why required return cannot computed by

    Why can we not compute the required return (Ke) by the Gordon-Shapiro model [P0 = Div0 (1+g) / (Ke – g)] in place of using the CAPM? As we identify the current dividend (Div0) and the current share price (P0), we can acquire the growth rate of the dividend by th

    		•
  • Q : Explain the definition of WACC An

    An investment bank computed my WACC. The report is as: “the definition of the WACC is defined as WACC = RF + βu (RM – RF); here RF being the risk-free rate and βu the unleveraged beta and RM the market risk rate.” It is differ from what we

    		•
  • Q : Low-discrepancy sequence or quasi

    Who proposed definition and development of low-discrepancy sequence theory or quasi random number theory?

    		•
  • Q : How could prestigious investment bank

    I have a doubt about the Enron case. How could this prestigious investment bank advice investing while the quotations of the shares were falling?

    		•
  • Q : Explain realization of name valuation

    I suppose that a valuation consciously realized in my name tells me how much I have to offer for the company, am I right?

    		•
  • Q : Calculating the Cost of Equity You are

    You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The

    		•
  • Q : Porters Primary activities Porter’s

    Porter’s Primary activities: 1. Inbound Logistics: • Suppliers’ details.• Storage details with respect to materials.• Details regarding pl

    		•
  • Q : Calculate the risk-free rate You have

    You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the

    		•