Part 1 - EVA Flashcards

1
Q

Công thức tính EVA

A

EVA is calculated as follows: EVA = net operating profit after tax (NOPAT) less capital charge
where the capital charge = weighted average cost of capital x net assets

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2
Q

Các điều chỉnh NOPAT

A
  • Value-building expenditure
  • Depreciation
  • Provision
  • Non-cash expenses
  • Operating leases
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3
Q

Value – building expenditure

A

Marketing and promotions, research and development, and staff training
=> It should be added back to PROFIT, and CAPITAL EMPLOYED in the year in which the expenses were incurred.

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4
Q

Điều chỉnh Depreciation

A

The charge for depreciation in the income statement should be ADDED BACK to profit, and a charge for ECONOMIC DEPRECIATION made instead

  • Economic depreciation reflects the true change in value of assets during the period.
  • GIẢ ĐỊNH accounting depreciation = economic depreciation => KHÔNG điều chỉnh gì
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5
Q

Điều chỉnh Provision

A

Provisions, allowances for doubtful debts, inventory write-downs, and deferred tax provisions should all be added back to CAPITAL EMPLOYED

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6
Q

Non-cash expenses

A

All non-cash items (eg goodwill) should be added back to PROFITS, and to CAPITAL EMPLOYED.

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7
Q

Operating leases

A

Được coi như finance lease, định giá trị và add back to CAPTIAL EMPLOYED.
Operating leases should be capitalised and added to CAPITAL EMPLOYED

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8
Q

Capital employed

A

Giá trị ĐẦU KỲ cộng thêm các điều chỉnh liên quan đến KỲ TRƯỚC

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9
Q

Công thức điều chỉnh liên quan đến tax và interest

A
  • NOPAT = Profit after tax – Tax relief + Interest

- NOPAT = Profit before tax – Tax paid – Tax relief + Interest

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10
Q

Công thức tính WACC

A

WACC = %Equi x Cost of Equi + %Deb x Cost of Deb (Post Tax)

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11
Q

ASSUMPTIONS

A
  • Trình bày các assumptions trong phép tính, có tính điểm: Depreciation, interest, non-cash, value-building expense.
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12
Q

Tính EVA cho 2 năm

A
  • Capital employed trong của năm thứ 2 = Capital employed của cuối năm 1
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13
Q

Advantages of EVA

A
  • EVA is a performance measure: A positive EVA indicates a division is creating value above that required by those who finance the business. It is therefore consistent with JLW’s objective to maximise shareholder wealth
  • Less distortion by accounting policies.
  • Treatment of certain costs as investments thereby encouraging expenditure.
  • Consistent with NPV.
  • An absolute value: Easy to understand
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14
Q

Disadvantages of EVA

A
  • Number of adjustments needed to measure EVA => These may be time consuming, and be poorly understood by managers
  • Based on historical financial information, whereas shareholders need information about future performance on which to base their decisions.
  • Absolute number => Cannot compare the companies with different sizes
  • Difficulty in estimating WACC: the weighted average cost of capital (WACC) in the EVATM calculation requires a number of assumptions and estimates to be made
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