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Eva22
- 7. EVA Implementation Process Understand and appreciate current readiness for change Determine strategy (objectives, messages, and media) Develop training/ communication materials Rollout Evaluate Results Step 1 Step 2 Step 3 Step 4 Step 5
- 8. Framework Example: A Major Oil & Gas Company Operating Profit Gasoline Operating Profit Distillate Operating Profit Car Wash Operating Profit Convenience Store Oper. Profit Lubricants Operating Profit Gasoline Operating Profit
- 12. Calculation of WACC for XYZ Company The total Weighted Average Cost of Capital (WACC) = 1,68,478 / 14,00,000 = 12.03% Particulars Amount (Rs.) Cost (%) Total (Rs.) Long Term Debt 5,00,000/- 9.47 47,375/- Preferred Stock Cost 2,00,000/- 11.2 22,400/- Common Equity Cost 7,00,000/- 14.1 98,700/- Total Capital 14,00,000/- - 1,68,475/-
- 13. Calculation of EVA for XYZ Company NOPAT Rs. 2,02,000/- Capital Employed (Including Rs.1,00,000/- Reserve & Surplus) Rs. 15,00,000/- Cost of Capital 12.03% Capital Charge (12.03/100 x Rs. 15,00,000/-) Rs. 1,80,450/- Economic Value Added (EVA) (Rs. 2,02,000 – Rs. 1,80,450) Rs. 21,550/-
- 17. 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.
Editor's Notes
- Point out that economics is a study of allocating scarce resources. Farmers are very accustomed to thinking about resources such as land, labor, and capital (which includes production inputs). But they may not consider time fully as they make decisions about some enterprises, including value-added options. It is important here to emphasize the time requirement.