VALUE REPORTING -AN INSIGHT. WHAT IS VALUE REPORTING The Value-Reporting model is about broadening...
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Transcript of VALUE REPORTING -AN INSIGHT. WHAT IS VALUE REPORTING The Value-Reporting model is about broadening...
VALUE REPORTING -AN INSIGHT
WHAT IS VALUE REPORTING
• The Value-Reporting model is about broadening corporate reporting to have companies identify and meet analysts’ and investors’ needs for relevant information about value drivers, intangible assets and estimated future cash flows
• The Value Reporting Revolution clearly explains why corporations must move toward greater transparency
TYPES OF VALUE REPORTING
Brand Valuation
Economic value Added
Intellectual Capital & Human
Resource Accounting
Wealth Creation
BRAND VALUATION
Evidence of brand value• Recognition of value of intangible assets • Continuous increase in the gap between companies’ book values and
their stock market valuations• Sharp increases in premiums above the stock market value that were
paid in mergers • Management attention has increased to these assets• Brand is a special tangible because of the economic impact• It influences the choice of customers,employees,investors• Brand plays a major role to contribute to shareholder value• Eg:Mc donald’s brand accounts for more than 70 percent of
shareholder value• Brand owning companies can earn huge returns on their capital and
grow faster.
Brand valuation models• Research –based brand equity valuations• Purely financially driven approaches• The most widely used is the brand –earnings- multiple model• Eg: if we see infosys brand valuation calculation,follows;• Determine brand profits by eliminating the non-brand prfits from
the total profits• Restate the historical profits at present day values• Provide for the remuneration of capital to be used for purposes
other than promotion of the brand• Adjust for taxes• Determine the brand- strength or brand-earnings multiple• The valuation based on factors on a scale of 1-100 internally.
Infosys brand value-year 2011
2011 2010 2009Profit before interest and tax 9,313 7,900 6,894Less : Non-brand income 1,090 891 426Adjusted profit before tax 8,223 7,009 6,468Inflation factor 1.000 1.103 1.217Present value of brand profits 8,223 7,732 7,871Weightage factor 3 2 1Weighted average profits 8,001 – –Remuneration of capital 1,284 – –Brand-related profits 6,717 – –Tax 2,231 – –Brand earnings 4,486 – –Brand multiple 9.03 – –Brand value 40,509 – –
(In Crores)
ECONOMIC VALUE ADDED
Economic Value Added• EVA is the difference between after tax operating profit and
cost of capital invested by both debt holder and equity holder.
– EVA=NOPAT-(Cost of Capital*Capital) where NOPAT is Net Operating Profit after tax
Capital is capital invested by both debt holder and equity holder
Cost of Capital = Weighted Average of after tax cost of equity and debt
• NOPAT = EBIT*(1-Tax Rate)• WACC = Debt/ (Debt+Equity)*(1-tax rate)*rdebt
+ Equity/(Debt+Equity)*requity
where rdebt and requity are the specific return expected by debt and equity holders and these are calculated by CAPM.
requity = rf + b(rm-rf)
List of EVA Disclosure Companies in Indian Corporate Sector
• TCS • INFOSYSTCH • HINDUNILVR • LT • TATASTEEL • SATYAMCOM
P • HEROHONDA • DRREDDY • OFSS • CROMPGREA
V• PIRHEALTH • CADILAHC • GODREJCP
• LAXMIMACH • PIDILITIND • MOSERBAER • J&KBANK • ISPATIND• ROLTA• FINPIPE• UNICHEMLAB• SASKEN• ORCHIDCHEM• THOMASCOOK• NUCLEUS • NAVNETPUBL
• EMAMILTD• SUNDRMFAST• JBCHEPHARM• VESUVIUS • ICSA • TATAMETALI • SHASUNCHEM
Medium of Disclosure Used for EVA Reporting
Medium of Disclosure Used Number of Companies
Percentage
Director’s Report 5 14
Management Discussion 10 27
Separate Section 13 35
Corporate Governance Report 2 5
Additional Information to Shareholders 4 11
Financial Highlights 11 30Others like Notes to accounts, Financials statements 2 5
in compliance with Indian GAAP
More than one 9 24
Areas of EVA-Application in Indian Companies
Scope of Use Number of Companies Percentage
Business/Financial Performance Measurement 19 51
Shareholder Value Enhancement 18 49
Incentive Payments/Equitable Reward System 7 19
Setting targets 4 11
More than one 8 22
Extent of EVA Disclosure by Indian Companies
Particulars Number of EVA Number of EVA
Reporting Non Reporting
Companies Companies
CAPM-based Cost of Equity Calculation 19 18
EVA (in Rs) 34 3
EVA Ratio 17 20
EVA Statement Basic 25 12
EVA Statement With Adjustments 2 35
INTELLECTUAL CAPITAL
WHAT IS INTELLECTUAL CAPITAL
• Intellectual capital is the difference in value between tangible assets (physical and financial) and market value. This contrasts with physical and financial forms of capital; all three make up the value of an enterprise.
• Measuring the real value and the total performance of intellectual capital's components is essential for any corporate head who knows how high the stakes have become for corporate survival in the Knowledge Economy and Information Age. So, the main point is how an organization can affect the firm's stock price using the leverage of intellectual assets.
Classification of Intellectual CapitalHUMAN CAPITAL
STRUCTURAL CAPITAL
RELATIONAL CAPITAL
• The value that the employees of a business provide through the application of skills, know how and expertise.
• Human capital also encompasses how effectively an organization uses its people resources as measured by creativity and innovation.
HUMAN CAPITAL
• The supportive infrastructure, processes and databases of the organisation that enable human capital to function.
• Structural capital includes such traditional things as buildings, hardware, software, processes, patents, and trademarks. In addition, structural capital includes such things as the organization’s image, organization, information system, and proprietary databases.
STRUCTURAL
CAPITAL
• trademarks, licences, franchises, but also the less definable, such as customer interactions and relationships
RELATIONAL
CAPITAL
HUMAN RESOURCE ACCOUNTING
ASSUMPTIONS• The people are valuable
organizational resources• Value of the people is
influenced by the Management Style
• Investors are aware about how is the employee being treated in the organisation.
OBJECTIVES• To provide the feedback to
the managers on the performance.
• To compute the return on the total assets employed. (Men & Machinery)
• To enable planning of Manpower.
WEALTH CREATION
Wealth is a total amount of economically relevant assets including physical, financial, human, IP asset ( R & D, technical knowhow, trade secret, etc.), and that benefits to society.
To create is to make something new, better, beneficial.
Wealth creation is more than mere possessing wealth
Making money and creation of wealth should go hand in hand
Will shareholders commit same mistake?????Theory of demand and supply –decisions based
on price of a shareRole of shareholders, consumers, governmentRole of institutional investorsShould value reporting be mandatory?
Conclusion ------- Highly subjective……No concept of belongingness
Long term perspectiveIncreasing the ability to earnInsure future incomeBanks, M&A, debenture holders, public deposits
Case analysis – Sahara’s issue of OFCD – a lesson – on brand value – is that every thing?
• TEAM MEMBERS– PRABHASH AGARWAL– SHIVANS GUPTA– SRIDHAR HARI BABU PURAM– SHARADA SHINDE– SIDDHANT GOYAL