Economic Value Added

In corporate finance, Economic Value Added or EVA, a registered trademark of Stern Stewart & Co and of EVA Dimensions LLC, is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm's capital. The idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital; see Corporate finance: working capital management. This amount can be determined by making adjustments to GAAP accounting. There are potentially over 160 adjustments that could be made but in practice only five or seven key ones are made, depending on the company and the industry it competes in.

Calculating EVA

EVA is net operating profit after taxes (or NOPAT) less a capital charge, the latter being the product of the cost of capital and the economic capital. The basic formula is:

where:

• , is the Return on Invested Capital (ROIC);
• is the weighted average cost of capital (WACC);
• is the economic capital employed;
• NOPAT is the net operating profit after tax, with adjustments and translations, generally for the amortization of goodwill, the capitalization of brand advertising and others non-cash items.

EVA Calculation:

EVA = net operating profit after taxes – a capital charge [the residual income method]

therefore EVA = NOPAT – (c × capital), or alternatively

EVA = (r x capital) – (c × capital) so that

EVA = (r-c) × capital [the spread method, or excess return method]

where:

             r = rate of return, and

             c = cost of capital, or the Weighted Average Cost of Capital (WACC).

NOPAT is profits derived from a company’s operations after cash taxes but before financing costs and non-cash bookkeeping entries. It is the total pool of profits available to provide a cash return to those who provide capital to the firm.

Capital is the amount of cash invested in the business, net of depreciation. It can be calculated as the sum of interest-bearing debt and equity or as the sum of net assets less non-interest-bearing current liabilities (NIBCLs).

The capital charge is the cash flow required to compensate investors for the riskiness of the business given the amount of economic capital invested. The cost of capital is the minimum rate of return on capital required to compensate investors (debt and equity) for bearing risk, their opportunity cost. Another perspective on EVA can be gained by looking at a firm’s return on net assets (RONA). RONA is a ratio that is calculated by dividing a firm’s NOPAT by the amount of capital it employs (RONA = NOPAT/Capital) after making the necessary adjustments of the data reported by a conventional financial accounting system.

EVA = (RONA – required minimum return) × net investments

If RONA is above the threshold rate, EVA is positive.

Comparison with other approaches

Other approaches along similar lines include Residual Income Valuation (RI) and residual cash flow. Although EVA is similar to residual income, under some definitions there may be minor technical differences between EVA and RI (for example, adjustments that might be made to NOPAT before it is suitable for the formula below). Residual cash flow is another, much older term for economic profit. In all three cases, money cost of capital refers to the amount of money rather than the proportional cost (% cost of capital); at the same time, the adjustments to NOPAT are unique to EVA.

Although in concept, these approaches are in a sense nothing more than the traditional, commonsense idea of "profit", the utility of having a separate and more precisely defined term such as EVA is that it makes a clear separation from dubious accounting adjustments that have enabled businesses such as Enron to report profits while actually approaching insolvency.

Other measures of shareholder value include:

• Added value
• Market value added
• Total shareholder return.

Relationship to market value added

The firm's market value added, or MVA, is the discounted sum (present value) of all future expected economic value added:

Note that MVA = PV of EVA.

More enlightening is that since MVA = NPV of Free cash flow (FCF) it follows therefore that the

NPV of FCF = PV of EVA;

since after all, EVA is simply the re-arrangement of the FCF formula.

 

VALUE BASED MANAGEMENT: Economic Value Added or Cash Value Added?

Introduction

Corporate managers now face a period where a new economic framework that better reflects value and profitability must be implemented in their companies. Accounting systems, which has been used up until today, are insufficient and will not stand the challenge from the increasingly efficient capital markets and owners. The increased efficiency at the capital markets requires that capital allocation within companies become more efficient and it is therefore not possible for companies to in the future allocate capital as inefficient as they do today. A new economic framework, a Value Based Management framework that better reflects opportunities and pitfalls, is therefore necessary.

In my opinion, there are four major frameworks within Value Based Management; Economic Value Added (EVA®1), Cash Value Added (CVA®2), Cash Flow Return on Investments (CFROI), and Shareholder Value Analysis (SVA). A company can chose one of these four for their company's economic framework of the future. The choice will have a substantial effect on management resources, strategy choices, and on how investors, analysts, media, etc view the company.

This paper will deal with EVA and CVA, the two most frequent concepts in Sweden. Many things are being said about the two frameworks. I will in this paper present my reflections on a few similarities and differences of the two frameworks.

In section 2 I will briefly discuss Value Based Management in general. Section 3 discusses the parts of the CVA concept that is necessary for the comparison with EVA. Section 4 discusses the parts of the EVA concept that is necessary for the comparison with CVA. Section 4 will also discuss whether EVA functions as a Value Based Management concept (which is its objective) or just another version of accounting. Section 5 will discuss the alleged necessity, for technical reasons, of basing a Value Based Management tool on accounting which EVA does, contra the possibility of basing it directly on Cash Flow which CVA does. Section 6 further compares EVA to CVA and it discusses the final corrections that are necessary to eventually have EVA become a concept that simulates cash flow. Section 7 will discuss the Market Value Added concept, and then we have the conclusion in section 8. In Appendix 1 I will discuss a company's concept of value from the shareholders' perspective. All figures, graphs and tables in the paper are my own.

I will leave out some interesting aspects in order to keep this paper a paper and not a book, e.g. the problems that we find in accounting's consolidation of multinational corporations, i.e. consolidation effects from inflation and currency effects, which also influence the quality of EVA.

 sumber : Universitas Indonesia

Doctors Should Screen Patients For Obesity

New York : Doctors should check weight and height for all patients to determine if they’re obese and refer them to intensive diet and exercise programs if necessary, according to new guidelines from a US govern-ment-backed panel.

The US Preventive Services Task Force said the guidelines echo its 2003 recommendations on screening for obesity, but take into account more recent evidence that adults can lose weight and keep it off with the right help.

“The good news is that even what you might consider to be modest rather than radical weight loss has tremendous health benefits, “including lowering diabetes risk and blood pressure, said Susan Curry, a member of the task force and dean of the University of lowa college of Public Health in lowa City.

“Losing 5 percent of your body weight has tremendous health benefits, and intensive behavioral counseling programs help you do that and sustain it, “Curry told Reuters Health. “Your primary care provider can, we hope, help you to find evidence-based programs.”

Conversation interview

A          : good morning, miss. My name is Aristi Lestari. Iam coming for an interview.

Miss     : Oh .. aristi. Thank you for coming to our office. Do you mind my asking in English ?

A          : No, miss. I hope I can answer your questions well.

Miss     : Thank you. Were do you live ?

A          : I live in Depok.

Miss     : Do you live here with your parents ?

A          : Yes, I live here with my parents and my elder sister.

Miss     : According to your curriculum vitae, you graduate from a gunadarma university.

A          : Yes, that’s right. I graduated from faculty of economy in 2013.

Miss     : What was your majoring ?

A          : I was majoring in accounting.

Miss     : Do you have any work experience ?

A          : No, I don’t have experience job.

Miss     : Why are you interested in accounting ?

A          : I am interested in accounting because accounting data are very important for management to make a decision.

Miss     : What your strength ?

A          : I am able to operate the computer, able to work in team, discipline, hardworking and able to sociliate with other people.

Miss     : What your weakness?

A          : I can speak English but little.

Miss     : Why are you interested in this company ?

A           : My first reason is that because the job you offered corresponds with my major. If I am accepted, I believe that a can practice my know ledge and develop my career. And the second reason is because this is a well-established international company.

Miss      : good, we have got some applicants for this post so I can’t let you know anything now. I hope you will be hearing from us in the next few days.

A           : Right, miss. I will be waiting for your next information. Thank you for the interview. Goodbye.

Miss     : my pleasure. Goodbye..

Samsung Galaxy S3

With the latest version of Android, a whopping 4.8-inch Super AMOLED HD screen and a whole suite of Apple-beating features, is the new Samsung Galaxy SIII the greatest phone ever?
Samsung has made a big deal about this new phone, not only choosing to launch it at a big and glitzy standalone event in London but also claiming nearly 10 million pre-orders before it's even launched.
The price is pretty palatable for a top-end phone – the likes of Three are already offering it for just £34 a month with oodles of minutes and data, which is already much, much cheaper than any iPhone would ever launch for.
But let's get down to the main question – is this the phone you should be spending your hard-earned cash on before it's even launched?
The Samsung Galaxy S3 is, according to Samsung anyway, 'inspired by nature – it sees, listens, responds, and allows you to share the greatest moments'.
While this is all a little hyperbolic, the nature theme is certainly present when you handle the phone for the first time.
Brushed polycarbonate – you've got a choice of 'Marble White' and 'Pebble Blue' – adorns the large device, which runs in with dimensions of 136.6 x 70.6 x 8.6mm, despite still having to pack in a 4.8-inch Super AMOLED HD screen.
We'll lay it out right now: the plastic feeling of the Galaxy S3 won't appeal to all. It feels very lightweight (despite tipping the scales at 133g) in the hand, and some people will read this as feeling a little cheap.
However, it's exactly the same sensation as we found on the Galaxy S2, and given the silly numbers of sales that had, we think there's more than a market for a phone that you'll barely notice in your pocket most of the time.
But we'll be very clear on this - the Galaxy S3 is not a cheap-feeling phone. It's got a really solid Gorilla Glass front, a well-packaged interior and a more robust battery cover. It's polycarbonate rather than bog-standard plastic, although we're not sure some people will like the more rounded nature of the design (although it's purely subjective).

CERITA RAKYAT DALAM BAHASA INGGRIS

Cerita Rakyat Dalam Bahasa Inggris Malin Kundang

At one time, there lived a family of fishermen in the coastal area of ​​Sumatra. The family consists of father, mother and a son named Malin Kundang. Because the family's financial situation is alarming, the father decided to make a living in the country by wading across the wide ocean. So Malin and his mother lived in their huts. A week, two weeks, a month, two months even a year over the length, Malin's father also did not return to his hometown. So that his mother had to replace Malin's father to make a living.

Malin including a smart kid but a bit naughty. He often chasing chickens and hit him with a broom. One day, when Malin was chasing chickens, she tripped over a rock and injured his right arm hit by stones. The wound became etched dilengannya and can not be lost.

After growing up, Malin Kundang feel sorry for her mother who worked hard for a living to raise themselves. He thought to make a living in the country side in hopes of later on when returning home, she was already a wealthy man. Malin interested in the invitation of a merchant ship captain who was once poor now become a wealthy man. Malin Kundang expressed intention to her mother.

His mother was originally less agrees with the intent Malin Kundang, but due to hold urgent Malin, Malin Kundang mother finally agreed though with a heavy heart. After preparing the supplies and equipment to taste, Malin head over to the dock with escorted by her mother. "My son, if you have succeeded and become affluent, do not you forget about your mother and halamannu this village, son," said Ms. Malin Kundang while in tears. Malin ridden ships that increasingly distant, accompanied by Ms. Malin Kundang wave. During their stay in the boat, Malin Kundang lot to learn about seamanship on the crew that have been experienced. Along the way, suddenly climbed Malin Kundang ships were attacked by pirates. All the commodities traders who were on the ship seized by pirates. Even most of the crew and people on the ship were killed by the pirates.

Malin Kundang very lucky he was not killed by the pirates, because when it happened, Malin immediately hid in a small space enclosed by the timber. Malin Kundang adrift amid the sea, until finally the ship was stranded on a beach. With the remaining power available, Malin Kundang walked to the nearest village from the coast. Arriving in the village, Malin Kundang helped by people in the village after previously telling what happened to him. Malin village where stranding is a very fertile village. With tenacity and perseverance in work, Malin gradually managed to become a wealthy man. It has a lot of merchant ships with men of more than 100 people.

After becoming rich, Malin Kundang marry a girl to be his wife. News Malin Kundang who have become wealthy and married to the mother also Malin Kundang. Mother Malin Kundang feel grateful and very happy his son had succeeded. Since then, the mother of Malin Kundang every day go to the dock, waiting for her son might return to his hometown. After a long marriage, Malin and his wife set sail with a large and beautiful ship with crew and a lot of bodyguards.

Malin Kundang mothers who stayed with his son every day, saw a very beautiful ship, into the harbor. He saw two people standing on the deck. He believes that standing was his son and his wife Malin Kundang. Malin Kundang came down from the ship. He was greeted by his mother. Once close enough, his mother saw right dilengan dozen injured people, the more convinced his mother that he was approached Malin Kundang. "Malin Kundang, my son, why did you go so long without sending any news?", She said, hugging Malin Kundang. But what happens then? Malin Kundang immediately release her mother's arms and pushed it down. "Women do not know myself, as my mother's only air admitted," said Malin Kundang to her mother. Malin Kundang pretended not to recognize her mother, embarrassed by her mother who is old and wearing tattered clothes. "She's your mother?", Malin Kundang wife Tanya. "No, he was just a beggar who pretended to be claimed as the mother in order to get my property," Malin said to his wife.

Hearing statement and treated unjustly by his son, Malin Kundang mother very angry. He is not expected her to be a rebellious child. Because of mounting anger, Malin's mother tipped his hand saying "Oh God, if he my son, I sumpahi he became a rock". Not long after the winds roared loud and violent storm destroys the ship came Malin Kundang. After that Malin Kundang body slowly becomes stiff and eventually finally shaped into a rock.