Part 1 - EVA

Question 1

Công thức tính EVA

Answer 1

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

Question 2

Các điều chỉnh NOPAT

Answer 2

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

Question 3

Value – building expenditure

Answer 3

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.

Question 4

Điều chỉnh Depreciation

Answer 4

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

Question 5

Điều chỉnh Provision

Answer 5

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

Question 6

Non-cash expenses

Answer 6

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

Question 7

Operating leases

Answer 7

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

Question 8

Capital employed

Answer 8

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

Question 9

Công thức điều chỉnh liên quan đến tax và interest

Answer 9

• NOPAT = Profit after tax – Tax relief + Interest

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

Question 10

Công thức tính WACC

Answer 10

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

Question 11

ASSUMPTIONS

Answer 11

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

Question 12

Tính EVA cho 2 năm

Answer 12

• Capital employed trong của năm thứ 2 = Capital employed của cuối năm 1

Question 13

Advantages of EVA

Answer 13

• 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

Question 14

Disadvantages of EVA

Answer 14

• 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