unit 9 Financial Aspects of Logistics and Supply Chain Management

Question 1

explain the concept of shareholder value, cost of equity, free cash flow,
economic value added, and give a brief account of how these values are
determined;

Answer 1

Shareholder value is determined by the market value of a company’s shares, and is a
key measure of corporate performance.
The returns that shareholders require
on an investmentCe = Rf + Mrp
free cash flow can be calculated as: the net operating profit after tax plus any non-cash adjustment shown on the statement of cash flows
less investments in working capital and property, plant and equipment needed to sustain operations.
Economic value added takes the cost of equity into account when reporting on profits.
Economic value added can be calculated as follows: EVA = NOPAT – CCE
Where:
NOPAT = net operating profit after tax
CCE = cost of capital employed (return required by the shareholders on the investment in the company)
= shareholders’ investment (equity) multiplied by the cost of equity