scholarly journals The cost of capital in the effectiveness assessment of financial management in a company

2016 ◽  
Vol 7 (2) ◽  
pp. 317 ◽  
Author(s):  
Aneta Michalak
Keyword(s):  
Financial Management ◽  
Cost Of Capital ◽  
Value Added ◽  
Market Value ◽  
Capital Budgeting ◽  
Company Value ◽  
Market Value Added ◽  
The Cost ◽  
Effectiveness Assessment ◽  
A Company

Financial management in a company is a decision process subject to achievement of the main goal of the company, that is its value maximization. Estimation of the cost of capital is of great significance in this area. The cost of capital affects the key decisions of the board concerning the scale of investment undertakings, determination of the target, demanded amount and pace of capital growth, shaping of optimal capital structure and other areas of financial management in a company such as capital budgeting, processes of takeovers and fusions etc. It is also a parameter in calculating the return on investment and in other analyses. The utilization of information about the cost of capital in the decision-making process in the company is strictly connected with the assessment of financial management in the company using market value added. The objective of the paper is to indicate the place of the cost of capital in assessing the effectiveness of financial management in a company, performed by the method of market value added. The considerations conducted are grounded on the assumption that if we base the effectiveness assessment of financial management in a company on the market value added growth, then the cost of capital will be one of the main parameters in each of the theoretical models presented concerning the company value pricing. In this way, the cost of capital is a parameter in the effectiveness assessment of financial management in a company at the same time. The article is of theoretical-cognitive and methodological character. It constitutes a reason for further empirical research confirming the relation proved in the theory of the relation between the cost of capital and company value, which is a basis for assessing the effectiveness of financial management in the company.  

scholarly journals ECONOMIC VALUE ADDED (EVA) dan MARKET VALUE ADDED (MVA) SEBAGAI ALAT UKUR KINERJA PERUSAHAAN

IQTISHODUNA ◽  
2011 ◽  
Vol 3 (2) ◽  
Author(s):  
Fitriyah Fitriyah
Keyword(s):  
Cost Of Capital ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
Equity Market ◽  
Company Performance ◽  
Book Value ◽  
Market Value Added ◽  
The Cost ◽  
A Company

Company performance is a measure that describes the financial condition of a company. The measurement of financial performance is based on the data gathered from financial reports made by the company. One of the popular measure for financial performance is financial ratios. However, financial ratios are only focused on accounting profit and do not include capital cost, so the resulting information cannot give adequate insight on the expected return from the investments made by the investors. In order to provide a solution for this challenge, a new concept has been proposed, that is economic value added (EVA) and market value added (MVA). EVA is a measure of added value generated by a company by reducing cost of capital that will indicated whether the rate of return is higher than the cost of capital expended for financing the investment. While MVA is a cumulative outcome of company performance which results from various investment which has been committed or is expected to be made. Hence, the success in terms of MVA is the success in maximizing the wealth of shareholders by allocating proper resources.EVA is calculated by subtracting after-tax net operating income from weighted average cost of capital (WACC). A positive EVA means that the company gains a greater return than the cost of capital, so that the investors will gain a return from their investment, and vice versa. MVA is calculated by subtracting equity market value with equity book value. Equity market value is calculated by multiplying the number of outstanding shares with share price, while equity book value is calculated by multiplying the number of outstanding shares with the nominal value per share. A positive MVA ( 1) means that that the management has been able to improve the wealth of the company and, by the same token, the investors' wealth, and vice versa.

scholarly journals CORPORATE PERFORMANCE AND THE MEASURES OF VALUE ADDED

Transport ◽  
2008 ◽  
Vol 23 (3) ◽  
pp. 194-201 ◽  
Author(s):  
Tomas Petravičius ◽  
Rima Tamošiūnienė
Keyword(s):  
Opportunity Cost ◽  
Return On Investment ◽  
Cost Of Capital ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
Economic Value Added ◽  
Consulting Firms ◽  
Market Value Added ◽  
The Cost

In recent years, managers have turned their attention to the ways increasing the value of their companies. A number of competing measures have been developed and marketed by investment and consulting firms. This paper considers the ways in which value can be created or destroyed in a firm and looks at how to calculate the cost of capital used to measure the opportunity cost of investing funds in one particular business instead of others with equivalent risk. Next, we have a look at the four most widely used value enhancement measures including Economic Value Added, Cash Flow Return on Investment, Market Value Added, Cash Value Added and use an example to think of where these approaches yield similar results and where differences might occur. In conclusion, we summarize the new or unique points in these competing measures, establish the information they can give and explain how to use it when managing and creating shareholder value.

scholarly journals PENGARUH ECONOMIC VALUE ADDED DAN MARKET VALUE ADDED TERHADAP NILAI PERUSAHAAN PADA (PERUSAHAAN MANUFAKTUR SUB SEKTOR MAKANAN DAN MINUMAN YANG TERDAFTAR DI BEI TAHUN 2014-2018)

2019 ◽  
Vol 3 (2) ◽  
Author(s):  
Mikrad Mikrad ◽  
Abdul Syukur
Keyword(s):  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
T Test ◽  
Coefficient Of Determination ◽  
Economic Value Added ◽  
F Test ◽  
Company Value ◽  
Market Value Added ◽  
A Company

The purpose of this study is to assess the extent to which the capital structure and profit of a company affect the value of a company and increase the prosperity of shareholders with a non-behavioral observation method of secondary data types entitled the influence of Economic Value Added and Market Value Added to the value of the company in the food and beverage sub sector registered on the Indonesia Stock Exchange in 2014-2018. For hypothesis testing using the F test, t test and coefficient of determination. T test is used to test hypotheses simultaneously, F test is used to test hypotheses partially, while the coefficient of determination is used to test how much the role of independent variables (EVA) and (MVA) together explain the changes that occur in the dependent variable (Company Value ). The analysis used is using multiple linear regression conducted through the program Eviews 9.0. Keywords: Economic Value Added, Market Value Added, and company value

scholarly journals Value Added as a Measure of Economic Profit

2018 ◽  
Vol 16 (29) ◽  
Author(s):  
Silvije Orsag ◽  
Ante Džidić
Keyword(s):  
Bosnia And Herzegovina ◽  
Cost Of Capital ◽  
Value Added ◽  
Business Success ◽  
Stock Exchanges ◽  
Cost Of Equity ◽  
Economic Profit ◽  
Company Value ◽  
Banja Luka ◽  
The Cost

Economic profit is the concept immanent for the value added. It is an attempt to analyze properly the business success in terms of contribution of profit to the increase in the company value and the stockholders’ wealth. Fundamentally, value added is a measure of the business success where all standard costs and the costs of invested capital are excluded from the realized revenues. Profit as a traditional measure of business success ignores the cost of equity, although equity is the most expensive form of capital. To illustrate better this concept, we made an analysis of the most profitable corporations in Bosnia and Herzegovina listed on Banja Luka and Sarajevo stock exchanges. The analysis showed that the majority of these corporations operate poorly because they do not meet the implicit cost of capital, essentially losing the value of capital entrusted to them by their stockholders. Also, this analysis questioned the importance of the industries which are usually considered to be the most important in BiH economy.

scholarly journals An analysis of capital budgeting methods, the cost of capital and decision-makers in listed South African firms

2012 ◽  
Vol 9 (2) ◽  
pp. 519-529
Author(s):  
John H. Hall
Keyword(s):  
South African ◽  
Net Present Value ◽  
Cost Of Capital ◽  
Capital Budgeting ◽  
Decision Makers ◽  
Internal Rate Of Return ◽  
Present Value ◽  
The Cost ◽  
Academic Qualifications ◽  
A Company

This study’s purpose was to link the length of decision-makers’ employment in a firm and their academic qualifications to their choice of capital budgeting methods and of cost of capital techniques. The results show that the net present value (NPV) is more popular than the internal rate of return (IRR) as a capital budgeting technique. Also, irrespective of how long respondents have been employed by a company, they all use a discount rate. However, there is a significant tendency among respondents with postgraduate qualifications to prefer the NPV as a capital budgeting technique. Thus, in South Africa, academic qualifications do play a role in decision-makers’ capital budgeting practices.

Empirical Evidences of Value Creation from Banking Industry of India

2017 ◽  
Vol 8 (3) ◽  
pp. 45
Author(s):  
Arvind Kumar Banger ◽  
S. K. Sharma ◽  
Rahul Chaudhary
Keyword(s):  
Value Creation ◽  
Financial Management ◽  
Banking Industry ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
Economic Value Added ◽  
Value Based Management ◽  
Significant Difference ◽  
Market Value Added

In wake of recent economic reforms in India with an aim of stabilizing the economy of India under the era of globalisation, banking industry has experienced a canonical shift in terms of value creation practices, methods and metrics for measuring bank’s performance. Value based management has long been hailed as the major objective of financial management of banks. A new trajectory of value based performance evaluation metrics have evolved and became an imperative of evaluating the performance of banks. The present study has been undertaken with the objective to measure the performance and value creation in the selected banks. The selected sample was taken from the public and private sector banks listed on stock exchange in India. In this study, Economic Value Added (EVA) and Market Value Added (MVA) across the selected banks were calculated based on the accounting figures and their difference was determined. The results showed significant difference between economic value added and market value added in selected banks is quite meaningful and significant.

Међузависност додате економске вредности, нето садашње вредности и тржишне вредности предузећа // Interdependence of Economic Value Added, Net Present Value and Market Value of a Company

2018 ◽  
Vol 13 (22) ◽  
pp. 53
Author(s):  
Милорад Иванишевић
Keyword(s):  
Net Present Value ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
Company Performance ◽  
Economic Value Added ◽  
Present Value ◽  
Market Value Added ◽  
One Year ◽  
A Company

Резиме: У чланку се најпре разматра додата економска вредност као метод за мерење перформанси предузећа у временским интервалима од годину дана. Затим се расправља о додатој тржишној вредности као разлици између тржишне вредности предузећа и вредности инвестираног капитала. После тога се објашњава међузависност додате економске вредности и додате тржишне вредности. На крају се показује да постоји повезаност нето садашње вредности као метода за оцену рентабилности инвестиција и тржишне вредности предузећа.Summary: Economic value added as a method for company performance measurement for time periods of one year is firstly analyzed in the paper. After that we discuss market value added as a difference between company market value and value of invested capital. Then the interdependence between economic value added and market value added is explained. Finally, we point out that there is relationship between net present value as a method for investment rentability evaluation and company market value.

scholarly journals Shareholders’ Value Creation and Market Price of Share: A Study in Indian Context

2017 ◽  
Vol 4 (01) ◽  
Author(s):  
Radhagobinda Basak
Keyword(s):  
Value Creation ◽  
Financial Management ◽  
Economic Value ◽  
Market Price ◽  
Value Added ◽  
Market Value ◽  
Long Run ◽  
Ratio Approach ◽  
Market Value Added ◽  
Degree Of Association

Shareholders’ value creation has become a matter of concern in the world of financial management in recent times. Shareholders’ value creation refers to the net value addition for the shareholders. In the present corporate scenario, financial managers do not concentrate only on profit generation but also on value creation for their shareholders, to ensure the survival of the business in the long run. It has been observed that shareholders’ value creation is related to market price of share. In this paper, an attempt has been taken to measure shareholders’ value creation by five different approaches selecting few sample companies. The approaches are- Market Value to Book Value Ratio approach, Economic Value Added (EVA) approach, Market Value Added (MVA) approach, Shareholders’ Value Added (SVA) approach and Shareholders’ View Point approach. Further, we quantify the degree of association that exists between shareholders’ value creation and market price of share. The data analysis reveals that shareholders’ value per share and market value per share are positively correlated to a considerable extent.

scholarly journals Perbandingan Kinerja Keuangan PT. HM Sampoerna Tbk Sebelum dan Sesudah Akuisisi Menggunakan Metode Financial Value Added (FVA) dan Market Value Added (MVA)

2018 ◽  
Vol 5 (1) ◽  
pp. 10
Author(s):  
TRI HERI NURDIANTO
Keyword(s):  
Performance Measurement ◽  
Financial Performance ◽  
Stock Price ◽  
Value Added ◽  
Evaluation Process ◽  
Market Value ◽  
Average Value ◽  
Market Value Added ◽  
Microsoft Office ◽  
A Company

Financial performance measurement within companies is very essential to make a policy about evaluation process of a company. Most research about company's financial performance in the past was measured by traditional accounting methods (financial ratios). Unfortunately, financial performance measurement using accounting method has a weakness for ignoring the cost of capital invested by investors. Financial Value Added (FVA) method is a measure of financial performance of companies that aims to evaluate financial value of the company, while the Market Value Added (MVA) method is a measure of financial performance of companies that aims to identify the value added of companies by analyzing the external conditions. This research was conducted to compare financial performance before and after acquisition using FVA and MVA. The data is processed using the program Microsoft office excel 2007.  The results of this study implies, that there are differences in financial performance as measured by the method of FVA and MV. It was shown that the average value of FVA after the acquisition is greater than value of FVA before the acquisition, while the average value after the acquisition of MVA is greater than MVA before the acquisition. The result shows different conclusion between the FVA and the MVA, because there are differences approach about those two measurements.FVA is a method to measure financial performance which is influenced by sales and money invested by the company. The more money invested by the company, the value of FVA become smaller. On the contrary, MVA is a method to measure financial performance which is influenced by a company's stock price. The higher closing price of a company, the bigger MVA

scholarly journals Índice de especulação de valor agregado: IEVA

2002 ◽  
Vol 13 (30) ◽  
pp. 32-45 ◽  
Author(s):  
José Roberto Kassai ◽  
Sílvia Kassai ◽  
Alexandre Assaf Neto
Keyword(s):  
Stock Prices ◽  
Average Cost ◽  
Cost Of Capital ◽  
Economic Value ◽  
Weighted Average ◽  
Value Added ◽  
Market Value ◽  
National Association ◽  
Economic Value Added ◽  
Market Value Added

Por meio deste artigo propõe-se a criação de um modelo de análise de balanços denominado de Índice de Especulação de Valor Agregado (IEVA), estabelecido com base em uma formulação matemática que envolve conceitos relacionados com a riqueza econômica de um empreendimento, tais como economic value added (EVA), market value added (MVA), weighted average cost of capital (WACC). Comparativamente a um outro modelo já existente na literatura: o Tobin's Q, contribui com novas análises; permite identificar o nível de especulação atribuído ao valor de uma empresa (market value), estabelecido em função do mercado de capitais (stock prices) e, de acordo com a análise proposta dos quadrantes do IEVA, evidencia o ciclo de vida das empresas. Mostra, por exemplo, como o valor das empresas que têm suas ações negociadas na The National Association of Securities Dealer Automated Quotation (NASDAQ) estaria "superestimado".

Sign in / Sign up

Export Citation Format

Share Document