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Transcript of EVA Excellence
Enterprising on Eva Excellence - An Empirical Study
on Select Companies in India
R.Kanthakrishnan and S.Jeyaraj
Abstract- The article titled “ENTERPRISING ON EVA
EXCELLENCE - An empirical study on select companies
in India” is intended to provide an insight into the role of
Economic Value Added concept as a performance
measurement/management tool in the Indian context.
There has been a remarkable turnaround of the Indian
corporate sector over the past few years. The BSE Sensex,
which is the benchmark of Indian corporate sector and the
economic barometer of the country, has surged from 10000
points in the beginning of 2006 to 18000 plus in the end of
2007 within a short period of less than two years. In this
context, a study on the performance of Indian companies in
terms of EVA was carried out in order to ascertain level of
value creation to the stake holders. This article is based on
an empirical study carried out on the select twenty
companies from various sectors like IT, FMCG,
A u t o m o b i l e , I n f r a s t r u c t u r e , M a c h i n e r y ,
Telecommunication, Steel, Cement and Pharmaceuticals.
The companies selected for the study are the leading
companies in their respective sectors. The article focuses
on the importance of EVA as an improved measure of
corporate performance over the traditional performance
indicators like PAT, ROI, ROCE, EPS, etc.
1. INTRODUCTION
In the presen t g loba l i sed marke t
e n v i r o n m e n t a n d i n c r e a s e d d y n a m i c
competitiveness, organizations all over the
world are adopting new strategies to gain
improved performance and to manage costs. To
monitor the effectiveness and efficiency of
activities, performance measures are required.
Over the past decades, evaluation of corporate
performance receives considerable attention.
One of the most basic and fundamental premise
of a business entity is the obligation to maximize
shareholders value in the long run. The interest of
the stakeholders and society are best-served
when the scarce resources are put to their most
productive uses. It is growingly realized that for
creating value, it is not enough to earn profit.
There is a need to earn enough profit to exceed
cost of capital. Generally, the financial
performance of a business segment/unit is
ascertained by measuring the cost of capital
within each division and then calculating the
operating return earned by that capital employed.
However, the stakeholders of the company would
like to know whether operating performance of
the company has added value to their wealth.
Traditionally, Net Profit and Return on
Investment (ROI) are the key performance
measures of business enterprises, which are
derived from the financial statements. There are
many companies which are reporting attractive
operating results in the financial statements, but
the real economic efficiency of a company is not
reflected there. Value creation is the core
objective of the stakeholders of a company. It is
widely recognized that earning profit is not
sufficient. The ability to generate profit is no
longer a test of profit adequacy. Ability to
generate economic value addition is the only test
of profit adequacy. Any surplus generated from
operating activities over and above the Cost of
Capital is termed as EVA. It is a corporate surplus
that should be shared by the employees,
management and shareholders. In the present
paper an attempt has been made to study the
performance of twenty select companies in India
in terms of EVA to ascertain the nature and extent
of value creation to shareholders.
The study confines to twenty select
companies in India belonging to different
2. SCOPE OFTHE STUDY:
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COLLEGE SADHANA Journal for Bloomers of Research, Vol. 3, No. 1, AUGUST 2010–
industries based on their EVA. The study
pertains to the financial year 2006-2007.
The study is undertaken in order:
The data used for the study have been taken
from the Annual Reports of the respective
companies available on their web sites. The study
confines to only twenty companies in India. The
analysis is based on past data and does not
ensure/predict the future performance.
The present study is based on secondary
data. The required secondary data were collected
from the Annual Reports of the select companies
for the year 2006-2007, various journals,
magazines, newspapers, books, various thesis
and dissertations and from web sites.
The sample size is twenty companies
selected from different industries like IT, FMCG,
Automobile , Infrastructure, Machinery,
Telecommunication, Steel , Cement and
Pharmaceuticals based on the significance of the
sectors and growth of the companies using a
combination of Judgmental Sampling and
Convenience Sampling.
The study covers the period of one year
2006-2007.
3. OBJECTIVES OFTHE STUDY:
4. LIMITATIONS OFTHE STUDY
5. COLLECTION OFDATA
6. SAMPLING DESIGN AND SAMPLING
METHOD
7. PERIOD OFSTUDY
�
�
�
�
To understand the concept of EVA as
i m p r o v e d t o o l s o f p e r f o r m a n c e
measurement.
To compute and analyse EVA of select
companies.
To evaluate the performance of select
companies by comparing EVA to Capital
Employed (CE).
To draw findings based on the study.
8 . T R A D I T I O N A L M E T H O D S O F
PERFORMANCE MEASUREMENT
9 . P I T FA L L S O F T R A D I T I O N A L
METHODS
Many management systems based on
archaic metrics and accounting conventions are
quite adept at discouraging, if not destroying
value. These systems were designed primarily as
reporting and control systems for lenders and
subsequently adopted by managers as variance
measurement tools in the centralized command
and control organizations more suited to less
turbulent environment of yesteryears. Over the
past decades, research in the field of accounting
and capital markets has been increasingly
focusing on the subject of measuring value
creation. Efforts have been made to empirically
examine the value-relevance of profitability
measure namely the Operating Income.
The first basic measure of performance is
considered as “Profit” - the accounting measure
of performance. However, it is said that profit is
an opinion and not the fact. EPS do not explain
the performance in reality. PAT is the base of EPS
which considers only the cost of debt but not a
vital cost component i.e. cost of equity. Price-
Earning Ratio (PER) is dependent on EPS, which
suffers from the same limitation. The important
limitation of conventional measures such as ROI,
ROE and ROA is inherent in the measurement of
accounting profit. As per current accounting
practices, while most of the assets are recorded in
the balance sheet at their historical cost, revenues
and expenses (excluding depreciation) are
recognized in the profit and loss account at their
current value. Therefore, the accounting rate of
returns does not reflect the true return from an
investment and tends to be biased downwards in
the initial years and upwards in the later years.
Further, accounting measures ignore the
cost of equity and consider only the cost of
borrowing. As a result, it ignores the risk
inherent in the project and fails to highlight
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COLLEGE SADHANA Journal for Bloomers of Research, Vol. 3, No. 1, AUGUST 2010–
whether the return is commensurate with the risk
of the underlying assets. This may lead to
selecting projects having attractive rate of return,
which will end up with destroying value of the
firm as the cost of capital is higher than the
benchmark return fixed by the management.
Thus, the traditional methods fail to reveal the
true economic performance and results of the
organizations.
“EVA is based on something we have
known for a long time: what we call profits, the
money left to service equity, is usually not profit
at all. Until a business returns a profit that is
greater than its cost of capital, it operates at a loss.
Never mind that it pays taxes as if it had a genuine
profit. The enterprise still returns less to the
economy than it devours in resources ….Until
then it does not create wealth; it destroys it”.
- Peter F Drucker
The term EVA is the acronym for Economic
Value Added and is a registered trade mark of
Stern Stewart & Co. of USA. EVA is defined as
“Excess profit of a firm after charging cost of
capital”. In other words, any profit caused over
and above the cost of capital is EVA.
Maximization of shareholders wealth is linked to
this surplus profit. EVA is regarded as a
comprehensive measure of performance and is an
indication of value creation and is calculated by
deducting the cost of capital from NOPAT (Net
Operating Profit After Tax). Thus, EVA is
considered as the true measure of corporate
surplus or effectiveness which should be shared by
the shareholders, management and employees.
EVA is the Net Operating Profit After Tax
(NOPAT) less the charge on economic capital
employed. In order to compute EVA, the
following parameters are required:
- Profit After Tax: It is available from the
Profit and Loss Account of the relevant
financial year.
10. EVA-AN OVERVIEW
11. REQUIREMENTS FOR CALCULATING
EVA
- Interest on Long Term Borrowing: It is
available in the Profit and Loss Account of
the relevant financial year.
- Tax Rate : It can be taken from the relevant
FinanceAct.
- Share Capital: It is available in the Balance
Sheet of the relevant financial year.
- Long Term Debt: It is available in the
Balance Sheet of the relevant financial year.
- Total Assets: It is available in the Balance
Sheet of the relevant financial year.
- Net Worth: It can be ascertained from the
Balance Sheet of the relevant financial year
by adding Share Capital and Reserves and
surplus and deducting intangible assets and
miscellaneous expenditure not written off.
- Capital Employed: It can be ascertained
from the Balance Sheet of the relevant
financial year by adding Net Worth and
Long Term Debt.
- Cost of Debt: It can be ascertained by
dividing the Interest on Long Term
Borrowing by the Long Term Debt.
- Cost of Equity: It can be calculated by
different methods like Dividend Yield
method, Dividend Growth method and
CAPM method.
NOPAT = (Profit After Tax + Non-
Recurring Expenses + Revenue Expenditure on
R&D + Interest Expense + Provision for Taxes) -
Non-recurring Income - R&D Amortization -
Cash Operating Taxes.
Cash Operating Taxes = (Provision for
Taxes + Tax benefit of Non-Recurring Expenses
+ Tax Benefit of Interest Expense - Tax on non-
Recurring Income).
Economic Capital = Net Fixed Assets +
Investments + Current Assets - (NIBCLs +
Miscellaneous Expenditure Not Written Off +
Intangible Assets + Cumulative Non-Recurring
Losses + Capitalized Expenditure on R&D) -
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R.Kanthakrishnan and S.Jeyaraj - Enterprising on Eva Excellence - An Empirical Study
on Select Companies in India
Revaluation Reserve - Cumulative Non-
Recurrent Gains.
The process of EVA calculation can be
classified into three major steps as follows:
This step starts with taking up Profits
Before Interest and Taxes (PBIT) and making key
adjustments for accounting distortions for
converting accruals into cash and reclassifying
some expenses as investments by capitalizing
them in the Balance Sheet and finally subtracting
the cash operating taxes so as to arrive at NOPAT.
This step starts with getting the invested
book capital from the balance sheet followed by
making adjustments for converting accounting
accruals to cash and finally making adjustments
to recognize off-balance sheet sources. The
resultant figure is the Economic Capital.
It is calculated by multiplying the Cost of
Debt and Cost of Equity by their respective
proportions of invested capital. The proportion
of debt and equity depends on the total amount of
each and this information can be taken from the
Balance Sheet.
Having completed the above steps, all the
elements to perform the final calculation of EVA
are available. EVA is the subtraction of capital
charge from NOPAT. The capital charge is the
economic capital multiplied by WACC (a
percentage).
While financial strategy is often narrowly
interpreted as an exercise in cost of capital
minimization, in practice, the determinants of
financial policy must support enterprise value
maximization. Certainly, the firm's cost of
capital and any resulting impact on firm value is
one important element, but financial strategy
12. STEPS IN EVACALCULATION
1. Calculating NOPAT
2. Calculating Economic Capital
3. Calculating Weighted Average
Cost of Capital (WACC)
13. EVAAND STRATEGY
must also support the company's business
strategy and consider financial flexibility,
agency issues, flotation costs and clientele
considerations.
The after tax cost of debt is well below the
expected return on equity, reduce the weighted
average cost of capital and increasing value.
However, debt reduces financial flexibility,
especially in turbulent times and this may lead to
foregone opportunity. While debt increases
current operations value, future growth value can
be constrained, risking a sub-optimization of
total enterprise value.
EVA is much more than just a measure of
performance. It is the framework for a complete
f i n a n c i a l m a n a g e m e n t a n d i n c e n t i v e
compensation system that can guide every
decision a company makes from boardroom to
the shop floor; that can transform a corporate
culture; that can improve the working lives of
everyone in an organization by making them
more successful and that can help them produce
greater wealth for shareholders, customers and
themselves. The benefits of EVA are discussed
below :
EVA is a strong tool for business planning.
It explains the cash surplus generated by the
company which can be ascertained by interested
groups. A company should earn better than the
opportunity cost of capital.
EVA is a good guidance for investors. EVA
theory represents a framework on which
investors may determine whether a business
enterprise is worth investing in resources.
Investors like EVA because it is a running score
showing how well managers are performing their
basic task of creating wealth.
EVA can be used effectively for valuation
of goodwill and shares. Valuation is an important
issue in corporate financial decision particularly
in mergers and acquisitions. EVA eventually
helps to explain the ability of company to
14. BENEFITS OFEVA
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COLLEGE SADHANA Journal for Bloomers of Research, Vol. 3, No. 1, AUGUST 2010–
generate clear surplus. EVAspread of a company
vis-à-vis EVA spread of the market leader
explains the super profit. For valuation of
goodwill and share, the company may
benchmark EVA spread because it is possible to
link EVA to valuation of goodwill and shares.
Goodwill can be assumed as the excess of EVA
spread enjoyed by a company over the
benchmark company multiplied by average
capital employed. Alternatively, discounted
value of average EVAcan be taken as goodwill.
EVA enables formulation of EVA-linked
employee compensation plan. EVA can be
wide ly used as a base for execut ive
compensation. It has been widely recognized
that EVA linked employee compensation is the
best way to set accountability towards
shareholders and protecting and improving
shareholders value. Management should be
rewarded when the shareholders are rewarded.
EVA incentive compensation plan is to be based
on a specific formula which rewards managers
for continuous EVA improvements and is
consistent with long term value creation strategy.
EVA can be effectively linked to Bonus
System. Instead of using EVAas base for bonus in
a unit, bonus should be linked to EVA of the
company. This avoids situation wherein some
business units might have generated EVA but
company as a whole had negative EVA.
Similarly, EVA can be used as indicator of value
addition for issue of sweat equity.
EVA is based on past accounting
information derived from financial statements.
Some studies reveal that market may place higher
reliance on audited accounting earnings than the
unaudited EVAmetric.
EVA can be biased against low return start-
up investments and can favour businesses with
heavily depreciated assets as a result of the
adjustments made to compute EVA. EVA
15. LIMITATIONS OFEVA
approach can penalize companies that invest in
assets with long term returns. In calculating
EVA, intangible assets are not considered. In the
current scenario, intangible assets play a crucial
role in creating value and decide a firm's future
growth potential. EVA calculations are difficult.
Subjectivity is involved in calculating both
NOPAT and WACC for a firm's divisions or
products.
The present economic age calls for
companies to have closer linkage between the
operating performance and wealth maximization
for the stakeholders. This requires strategic
thinking to create and sustain economic value by
concentrating on the improvement of the future
growth value. In India, there are two ways that
EVA has been embraced by the corporate sector.
Some companies like TCS, have implemented
EVA as a performance measurement and
evaluation system linked with incentive. A
number of companies like Infosys, Satyam,
Dr.Reddy's Laboratories, Hindustan Lever and
Hero Honda report EVA as addit ional
information in their annual reports. During
recent years, EVA growth has been found in
sectors like IT, Cement, Steel, FMCG,
Automobile, etc.
The sample companies for the study have
been selected from among the different sectors
such as Information Technology, Fast Moving
C o n s u m e r G o o d s , A u t o m o b i l e s ,
Telecommunication, Machinery, Infrastructure,
Steel, Cement and Pharmaceuticals. As a first
step, the PBIT, NOPAT, Economic Capital and
WA C C o f t h e s e l e c t c o m p a n i e s a r e
derived/calculated based on the financial
statements of the respective companies, as shown
in Table 1.
16. EVAIN THE INDIAN CONTEXT
17. SELECT COMPANIES FOR THE
STUDY
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R.Kanthakrishnan and S.Jeyaraj - Enterprising on Eva Excellence - An Empirical Study
on Select Companies in India
Table 2. Comparative Analysis of ROI, ROCE, EVA and EVA to CE of twenty select companies
Sl No Company Name ROI ROCE EVA EVA/CE EVA EVA/CE
RankRank
1 TCS 0.37 0.53 3901.14 0.42 3 3
2 Wipro 0.23 0.33 2299.70 0.23 6 6
3 Infosys 0.29 0.34 707.46 0.06 14 19
4 Satyam 0.23 0.27 53.68 0.01 20 20
5 HLL 0.25 0.67 1307.55 0.47 10 2
6 ITC 0.26 0.38 1573.00 0.15 9 13
7 Nestle India 0.40 1.19 279.70 0.69 19 1
8 Hero Honda 0.29 0.47 676.00 0.26 15 5
9 Tata Motors 0.14 0.23 1934.02 0.13 8 15
10 Maruti Udyog 0.23 0.31 1095.43 0.14 12 14
11 BHEL 0.16 0.40 2056.36 0.22 7 7
12 L& T 0.13 0.24 2354.87 0.18 5 11
Table 1. PBIT, NOPAT, Economic Capital and WACC of Select Companies (Rs. In Crores)
Sl.No. Company PBIT NOPAT Economic Capital WACC (Ratio)
1 TCS Ltd 4927.73 4428.08 8572.01 0.06
2 Wipro Ltd 3311.20 2972.10 9037.40 0.07
3 Infosys Technologies Ltd 3756.00 3453.00 11162.00 0.25
4 Satyam Computers Ltd 1580.84 1405.83 5803.15 0.23
5 Hindustan Lever Ltd 1872.41 1622.38 2796.09 0.11
6 ITC Ltd 4069.41 3034.77 11425.80 0.13
7 Nestle India 480.96 321.48 405.16 0.10
8 Hero Honda Ltd 1247.61 806.92 2764.81 0.06
9 Tata Motors Ltd 3493.95 2853.95 15635.86 0.06
10 Maruti Udyog Ltd 2356.70 1782.70 7848.20 0.09
11 Bharat Heavy Electricals Ltd 3779.40 2894.21 8877.59 0.09
12 Larsen & Toubro Ltd 3166.89 2735.55 13975.12 0.03
13 BhartiAirtel Ltd 4927.23 4673.01 17205.15 0.08
14 SteelAuthority of India Ltd 9851.49 8147.37 23402.08 0.16
15 Tata Steel Ltd 6724.21 4930.30 41638.39 0.02
16 Ultra Tech Cements Ltd 1253.02 1197.19 3902.67 0.07
17 India Cements Ltd 641.76 637.10 4294.46 0.08
18 Ranbaxy Laboratories Ltd 754.67 1452.23 6738.54 0.03
19 Dr.Reddy's Laboratories Ltd 1413.81 1384.11 4760.99 0.17
20 Lupin Pharmaceuticals Ltd 444.67 392.54 1840.79 0.06
18. CALCULATION of ROI, ROCE, EVA
and EVAto CE
The following table shows the ROI, ROCE,
EVA and EVA to CE. Since the select twenty
companies are from different sectors, an external
benchmark is necessary for meaningful
comparison, for which the ratio of EVA to CE has
been calculated for the select companies and a
comparative analysis of EVA and EVA to CE
among the select companies are made as given in
Table 2. In order to maintain consistency in
computation, the Cost of Equity (Ke) has been
calculated using “Dividend-Growth Model” for
all the companies.
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COLLEGE SADHANA Journal for Bloomers of Research, Vol. 3, No. 1, AUGUST 2010–
13 BhartiAirtel 0.18 0.29 3267.83 0.20 4 8
14 SAIL 0.28 0.45 4445.01 0.20 1 8
15 Tata Steel 0.14 0.17 4096.12 0.10 2 17
16 Ultratech 0.27 0.38 924.88 0.28 13 4
17 India Cements 0.13 0.15 295.05 0.07 17 18
18 Ranbaxy 0.09 0.12 1265.65 0.19 11 10
19 Dr Reddy's 0.26 0.30 591.44 0.13 16 16
20 Lupin 0.20 0.26 292.05 0.17 18 12
19. COMPARATIVEANALYSIS
A comparative analysis of EVA to CE,
which is considered as an
for the present study, as presented in Table 2.,
reveals the following:
1. TCS has the EVA/CE ratio of 42%, which
may be due to its comparable ROI (37%)
and lowest WACC (6%) among the IT
companies.
2. WIPRO Ltd. has EVA/CE ratio of 23%.
This may be due to the same rate of ROI and
better WACC (7%).
3. Infosys Technologies Ltd. has the EVA/CE
ratio of 6%, even though its ROI is almost
5 times more (29%). This may be mainly due
to the absence of debt content in the capital
structure, which has pushed up the WACC,
which consists of cost of equity only.
4. Satyam Computers Ltd. has the EVA/CE
r a t i o o f 1 % , t h o u g h i t s R O I i s
disproportionately higher (23%). This
may be basically due to low debt content in
the capital structure and higher cost of
borrowing.
5. Hindustan Lever Ltd. has EVA/CE ratio of
47%, which could have been due to its
operating performance (ROI - 25%) and
lower cost of equity.
6. ITC Ltd. has the EVA/CE ratio of 15% even
though it has a better ROI (26%). This may
be higher equity content in the capital
structure and higher cost of equity.
External Benchmark
7. Nestle India Ltd. has the highest ratio (69%)
of the benchmark (EVA/CE). This may be
due to the high operating performance
(ROI - 40%) and low cost of debt.
8. Hero Honda Ltd. has EVA/CE ratio of 26%,
which may be due to closer ROI (29%) and
l o w e r WA C C a m o n g A u t o m o b i l e
companies.
9. Tata Motors Ltd. has the EVA/CE ratio of
13%, which is close to its ROI (14%).
10. Maruti Udyog Ltd. has the EVA/CE ratio of
14%, inspite of its much higher ROI (23%).
This may be due to higher cost of equity.
11. BHEL Ltd. has EVA/CE ratio of 22% which
may be due to considerable ROI (16%) and
a mix of higher debt (70%) content in the
capital structure and lower cost of debt
(8%).
12. Larsen & Toubro Ltd. has the EVA/CE ratio
of 18%, though its ROI is 13%. This may be
due to higher debt content and lower
WACC.
13. Bharti Airtel Ltd. has EVA/CE ratio of 20%
which slightly higher than it's ROI (17%)
and lower than its ROCE (29%). This may
be due to high debt content in the capital
structure and low cost of debt.
14. SAIL Ltd. has the EVA/CE ratio of 20%.
This is lesser than its ROI (28%) which may
be due to a mix of higher equity content
(47%) in the capital structure and higher
cost of equity (25%)
65
R.Kanthakrishnan and S.Jeyaraj - Enterprising on Eva Excellence - An Empirical Study
on Select Companies in India
15. Tata Steel Ltd. has the EVA/CE ratio of
10%, though it has a slightly better ROI
(13%).
16. Ultra Tech Cements Ltd. has EVA/CE ratio
of 28%, which may be due to similar ROI
ratio (27%) and high levered Debt-Equity
ratio.
17. India Cements Ltd. has the EVA/CE ratio of
7% though it has a better ROI (13%), which
may be due to its slightly higher WACC.
18. Ranbaxy Laboratories Ltd. has the EVA/CE
ratio of 19%, inspite of its ROI being 9%.
This may be due to higher proportion of
debt and lower WACC.
19. Dr.Reddy's Laboratories has the EVA/CE
ratio of 13%, in spite of its much better ROI
(26%). This may be due to higher cost of
equity and debt.
20. Lupin Pharmaceuticals Ltd. has the
EVA/CE ratio of 17%, which is slightly
lower than its ROI (20%).
Thus, in an overall analysis of the twenty
select companies, Nestle India Ltd. stands first in
terms of EVAto CE (69%) followed by Hindustan
Lever Ltd. (47%) in the second place and Tata
Consultancy Services Ltd. (42%) in the third
place. Satyam Computers Ltd. stands last with
the EVAto CE ratio of 1%.
The present study reveals that all the twenty
companies have positive EVA Further, since
EVAare in absolute figures, comparison has been
made keeping EVA to CE ratio as external
benchmark, which have revealed the following:
Three companies (Nestle India, Hindustan
Lever and Tata Consultancy Services) have the
EVA to CE ratio of more than 40%, indicating an
of value creation.
Six companies (Ultratech, Wipro, Bharti
Airtel, Hero Honda, SAIL and BHEL) have the
EVA to CE ratio ranging between 20% and 40%,
indicating of value creation.
20. FINDINGS
excellent level
effective level
Eight companies (Tata Motors, Maruti
Udyog, ITC, L&T, Tata Steel, Ranbaxy,
Dr.Reddy's and Lupin) have the EVA to CE ratio
ranging between 10% and 20%, indicating
of value creation.
Three companies (Infosys, Satyam and
India Cements) have the EVA to CE ratio below
10%, even though their operating performance
measured in terms of ROI and ROCE are much
better. These companies have to adopt a
combination of strategies such as injecting more
debt content in the capital structure, switching
over to low cost of debt and improving the
operating performance through better asset
utilization in order to improve their EVA.
EVA has the advantage of being
conceptually simple and easy to explain to non-
financial managers, since it starts with familiar
operating profits and simply deducts a charge for
the capital invested in the company as a whole, in
a business unit, or even in a single plant, office or
assembly line. By assessing a charge for using
capital, EVA makes managers care about
managing assets as well as income, and helps
them properly assess the tradeoffs between the
two. This broader, more complete view of the
economics of a business can make dramatic
differences.
The popularity of EVA stems from the fact
that it is the operating measure that truly drives
shareholder wealth, which is the difference
between what the capital investors put into a
business and the value they could get by selling
their claims. It is based on the economic principle
that shareholder wealth will increase only if the
organization is able to generate surplus over its
cost of capital. The number of companies
adopting EVA is increasing rapidly. There are
more than 500 organizations throughout the
world who have adapted EVA as a corporate
philosophy. Multinational companies like Coca-
Cola and Baush & Lamb are very successful in
implementing EVAas a new tool for performance
considerable level
21. CONCLUSION
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COLLEGE SADHANA Journal for Bloomers of Research, Vol. 3, No. 1, AUGUST 2010–
appraisal as well as value creation. Many
companies in India have also begun to realize the
need to concentrate on EVA as a benchmark to
create value for shareholders as there is a greater
incentive and compulsion to focus on value
creation in the globalised environment of today.
Hence, EVAcan be computed and reflected in the
Financial Statements by all corporate enterprises
as mandatory information, since it is a better
performance indicator of value creation.
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R.Kanthakrishnan and S.Jeyaraj - Enterprising on Eva Excellence - An Empirical Study
on Select Companies in India