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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.11

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

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ECONOMIC VALUE ADDED MARKET VALUE ADDED

Attempts to measure the true economic profit produced by a company

Diff between –current market value of company & capital contributed by investors.

Performance metric Wealth metric

Useful for investors-determine the company value

Improves the book value of the company shares

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. 

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ECONOMIC VALUE ADDED

NET PRESENT VALUE

Benett Stewart-to measure the value of the firm

Peccati - decomposition ofthe NPV of a financial project.

More immediateness and incisiveness

Less immediateness and incisiveness

Accounting figures Market values

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CHANGING ORGANISATIONAL BEHAVIORGENERATES SUFFICIENT CASH TO

REINVESTSUSTAINABLE GROWTHPHARMACEUTICAL MARKET PLACEEVA LINKED COMPENASATION( TCS)PROFIT PRUNING

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

Peter F. DruckerPeter 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 VALUEVALUE 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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CONCLUSIONwe 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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