--%>
Assignment Help - homework help

Which parameter good measures value creation

Which parameter good measures value creation; the Economic Value Added (EVA), the CVA (Cash Value Added) or the economic profit?

E

Expert

Verified

The Economic Value Added (EVA) is the profit before interests minus the book value of the company multiplied with the WACC. The Economic Profit (EP) is the net income minus the book value of the shares multiplied with the needed return to equity. The Cash Value Added (CVA) is the profit before interests plus depreciation, minus economic depreciation, minus the cost of the utilized resources.

Fernández (2001) demonstrates that EP, EVA and CVA do not measure value creation in a company for all periods.  These parameters can prove to be of specific usefulness to executives and to the business units while setting objectives, but this does not make any sense to provide the EP, EVA and CVA the meaning of value creation for each period.

   Related Questions in Corporate Finance

  • Q : Is Capital Cash Flow identical with

    Is Capital Cash Flow identical with Free Cash Flow?

    		•
  • Q : What is Money Spreads Money Spreads :

    Money Spreads: Option trading strategies can be classified into various types like those pertaining to combination of one option with another option or set of options, other derivative contracts, stocks, etc. This paper focuses mainly on money spreads

    		•
  • Q : Problem on raising new capital AB

    AB Corporation has 3 million shares of common stock selling at $19 each. It also contains $25 million in bonds with coupon rate of 8%, selling at par. AB requires $10 million in new capital that it can raise by selling stock at $18, or bonds at 9% interest. The expect

    		•
  • Q : Strategy of Bear Spread State when

    State when markets are anticipated to go down then what is the Strategy of Bear Spread?

    		•
  • Q : Real estate problem Eric Rowan is

    Eric Rowan is planning to buy a house for $155,000 by borrowing money at the rate of 9%. He expects to rent the house for 5 years, collecting $20,000 annual rent in advance each year. He thinks that he can sell the house for $175,000 after five years. Fulton has incom

    		•
  • Q : Explain the branching structure of the

    Explain the branching structure of the binomial model.

    		•
  • Q : Explain market efficiency hypothesis

    According to what I read inside a book, market efficiency hypothesis means that the expected average value of variations is zero in the shares price. Thus, the best estimate of the future price of a share is its price now, as this incorporates all the available inform

    		•
  • Q : Explain Financial Management Financial

    Financial Management: It means organizing, planning, directing and controlling the financial activities like procurement and use of funds of enterprise. This means exerting general management principles to the financial resources of enterprise. <

    		•
  • Q : What is Financial Analysis Financial

    Financial Analysis: It is the investigation and interpretation of financial statements and associated financial reports. Trained and certified accountants generally complete this kind of analysis. The role of a financial analyst is to

    		•
  • Q : Define stock variable Stock variable :

    Stock variable: It is a variable whose value is measured or evaluated at a point of time.

    		•