Introduction to EVA Management System.ppt

New York ?Chicago ? Los Angeles ? London ?Paris ?Milan ?Munich ?TokyoSao Paulo ?Singapore ? Sydney ?Johannesburg ? ShanghaiIntroduction to EVA Management System Contents?What is EVA??The calculation of EVA?The EVA management systemContents?What is EVA??The calculation of EVA?The EVA management systemEVA? is Earnings After the Cost of CapitalRevenues-Operating Costs-Depreciation-/+ Adjustments-Taxes=Operating e After Tax (NOPAT)-Capitalx c%Capital Charge=EVA??Objective: Continuous Improvement in EVA??Objective: Objective: Continuous Improvement in EVAContinuous Improvement in EVAP/LB/SThe intrinsic value is the determinant of the market value in efficient capital marketIntrinsic valueIntrinsic Intrinsic valuevalueFinancial measuresFinancial Financial measuresmeasuresOperating metricsOperating Operating metricsmetrics?MVA, Stock price? EVA?ROI, Capital turnover, margin?Market share, Unit cost, scrap rate, delivery petitive strategy?Business model?Management system?Operating efficiencyMarket valueMarket Market valuevalueUS as example50%40%30%20%10%Correlation with stock priceEVA ROECash Flow EPSRevenueAs a measure of business intrinsic value, EVA correlates with stock price better than other measuresEVA measure gives more insights into the businessFrom Enron’s 2000 Annual Report (Letter to Shareholders):Enron’s performance in 2000 was a ess by any measure…pany’ e reached a record in 2000. Enron is laser-focused on earnings per share, and we expect to continue strong earnings performance.(in IncEPSEVA(in mil)Contents?What is EVA??The calculation of EVA?The EVA management system9From the traditional accounting model to the economic model of the ountingFrameworkEVAFrameworkEVAFrameworkAdjustmentsP&LBalance SheetCash Flow StatementNOPATCapitalEVA?Separate financing effects from operating performance?Extend matching of costs with revenue to economic basis ?Separate operating from non-operating?Eliminate book keeping entries/reserves that dis