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WELCOME
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WHAT IS EVATM ?
Most successful performance metric

Popularity is a result of able marketing and


deployment by STERN STEWART, owner of the
trademark

EVA is a measure of financial performance based


on the context that all capital has a cost and that
earning more than the cost of capital creates value
for shareholders.

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ECONOMIC VALUE
ADDED:
 Registered trademark of Stern Stewart & Co. of
New York City ( USA)
 “QUEST OF VALUE”-Term EVA with a symbol TM as
super script was used.
 EVA is a trademark of Stern Stewart & Co. is a
specific method of calculating economic profit.
 Peter Drucker discussed EVA “MANAGING FOR
RESULTS”
 Concept was popular after Stern Stewart & Co.
marketed it.

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 Increasingly popular corporate performance
measure and that is often used by co’s to
evaluate performance-
 “EASTON,P.HARRIS,T AND OHLSON,J”

 Enables the direct alignment of management


and shareholders interest- “RICE,V.A.”

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UNDERSTANDING EVA AND
ITS
COMPONENTS

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COMPONENTS OF EVA:

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EVA: A FLOW CHART

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Measure of wealth a company has created
for its investors
Cumulative measure of corporate
performance
Primary objective of co.- Maximizing MVA

MVA =
[(Shares outstanding x Stock price) + Market
value of preferred stock + Market value of
debt] – Total capital
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EVA V/S MVA
ECONOMIC VALUE ADDED MARKET VALUE ADDED

Attempts to measure the true Diff between –current market


economic profit produced by a value of company & capital
company contributed by investors.

Performance metric Wealth metric

Useful for investors-determine the Improves the book value of the


company value company shares

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The difference between the present value of cash
inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the
profitability of an investment or project.
ECONOMIC VALUE ADDED NET PRESENT VALUE
Benett Stewart-to Peccati - decomposition of
measure the value of the the NPV of a financial
firm project.

More immediateness and Less immediateness and


incisiveness incisiveness
Accounting figures  Market values

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CHANGING ORGANISATIONAL BEHAVIOR
GENERATES SUFFICIENT CASH TO REINVEST
SUSTAINABLE GROWTH
PHARMACEUTICAL MARKET PLACE
EVA LINKED COMPENASATION( TCS)
PROFIT PRUNING

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FORTUNE magazine has called EVA “today’s hottest idea”.

Peter F. Drucker commented in HBR:


EVA measures “total factor productivity”.

A look at the performance of the new economy companies


would perhaps vindicate the comments well.

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ACKNOWLEDGEMENT IN HUL REPORT

Traditional approach to measuring ‘shareholders’ value


creation’ have used parameters such as earnings
capitalization, market capitalization and present value of
estimated future cashflows. Extensive new research has
now established that it is not earnings per se, but VALUE
that is important. A new measure called ‘Economic value
Added’(EVA) is increasingly being applied to understand
and evaluate financial performance.

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APPLICATION IN HUL:
HUL.xls

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EVA AND HUL

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CHRONOLOGY OF EVA GROWTH:HUL

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CONCLUSION
we can definitely say that EVA™ has emerged as a
powerful conceptual framework and is practically
implemented in most of successful corporations
across globe. Which incorporates balance sheet data
into an adjusted income statement metric which
works best for companies whose tangible assets
(assets on the balance sheet) correlate with the
market value of assets - as is often the case with
mature industrial companies. 

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