EVA And WACC

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Financial Analysis for XYZ Company Using EVA & WACC

Question 1: Reflecting to question one in the tutor marked assignment case study, which relate to the XYZ Company through analyzing the financial accounting statement to understand the company’s internal performance in terms of strengths and weaknesses by explaining the EVA and its advantage and disadvantages of using EVA as company performance measurement toll in the period from 2011 to 2015. Calculating EVA and explaining the trend of the company and the factor behind it, showing the key drive of it. Introducing the weighted-average cost of capital (WACC) importance and how to manage the cost of capital by the management team.

Economic value added (EVA) its use as indicator, internal
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Also EVA define and summarizes how much and from where company created wealth, and shows the relation between the operating profit and the cost of capital of the investment. So it’s more useful to use more for such auto manufacturers companies because it’s more tangible and fixed assets have than use it in intangibles assets companies such as technology companies. Moving to the disadvantages of using EVA indicator in performance measurement such that its fail to consider the future prospects of the company and it just measure the available past and present financial statement, which means that its only applies to the period measured. Also EVA not applicable for unstable companies such as service or software companies with a lot of intangible assets (Baran & Hrotko, …show more content…
(2015). “Does Eva Beats Earnings? “ A literature Review of the Evidence, Biddle et al. (1997). Corporate Ownership and control, Volume 12, Issue 2, PP8-18. Discussing the main aim of the papers argument and the main conclusion. Thin moving to the last parts in question two which is talking about the methodology and analysis of empirical literature, by summarizing this section 3 and 4 of the paper and show the critically evaluate.
The main aim of the paper argument in the residual income based such as EVA compare to the traditional accounting base performance measures such as NOPAT, EPS, ROI, and so on to defining the shareholder value and wealth. Since 1997 to 2014 of Biddle et al. 1997. The article scanned 618 arterials and it was only 21 articles that have support to the Biddle et al .1997. Evidence of the residua income to use EVA for a proper performance measures to increase the value of shareholder and at the same time show the consequence of using both the residual or accounting as performance management of the investment to be more superiors depends on the sources of the capital such as equity or debt or self-investment money (Svennesen & Lueg,

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