Advantages And Disadvantages Of Economic Value Adability
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COMPARING ECONOMIC VALUE ADDED FOR TOP 30 BSE COMPANIES
MINIMIZING THE GAP BETWEEN ACTUAL PROFITABILITY TO SHOWN PROFITABILITY
Birla Institute of Technology and Management
Bachelor of Engineering-IT (Specialization in Multimedia)
Birla Institute of Management Technology (PGDM-International Business)
This Research was done under the guidance of Prof. Arindam Banerjee, FCMA CFP Faculty - Finance and Accounting Birla Institute of Management Technology Plot No.5, Knowledge Park II…show more content… He talks about EVA and Problems relating to Profit-Based measurers. He demonstrates the calculation of EVA along with all the Accounting Adjustments Required.
NICK RYAN (2011) in his second Paper talks about how to interpret Calculated EVA and its use both as organizational performance measure and divisional performance measure. He also talks about various disadvantages of Economic Value Added.
An article by Shane Johnson (2007), in this article he talks about Economic Value Added, Adjustments required calculating EVA and Calculation of EVA. He has also talked about the advantages of EVA over profit based measures used by companies over years and he talks how EVA helps in ending the confusion of multiple goals for managers.
Andrew C.Worthington and Tracey West (2001) in there paper, they have done a synoptic survey of EVA’s conceptual underpinnings and the comparatively few empirical analyses of value-added performance measures. They have focused on GAAP- related accounting adjustments involved in EVA-type calculations.
In this present paper we have derived our process of calculation from above articles and papers and we have done analysis on top 30 companies in Bombay stock exchange and we have calculated and compared there EVA to…show more content… Risk Free Interest Rate has been taken From RBI.
4. Annual Reports have been taken From MONEYCONTROL website.
4. Explaining Calculation of EVA
Calculation of NOPAT (Net Operating Profit after Tax)
CALCULATION OF NET OPERATING PROFIT AFTER TAX
Mar-14 Mar-13 Mar-12 Net Sales 11,168.94 11,357.96 9,660.29
Cost of Goods Sold 5,713.80 5,177.74 4,407.37
Selling, General And Administrative Expenses 3,819.82 3,964.62 3,426.59
Depreciation 573.95 558.88 475.30
Other Operating Expenses
Operating Profit 1,628.79 2,195.58 1,920.72
Tax 131.20 390.30 215.16 NOPAT 2,558.96 3,462.00 3,056.59 Figure 4.1
Explaining each Separately
1) Net Sales: It can be directly taken from Profit and Loss account of Financial Statements of Company.
2) Cost of Goods Sold: It can also be calculated by adding up the values of Employee Cost, Raw Materials and Power & Fuel Cost which can be taken from Profit and Loss Account.
3) Selling, General And Administrative Expenses: It can be calculated by adding up the values of Other Manufacturing Expenses, Selling and Admin Expenses, Miscellaneous Expenses and subtracting Preoperative Expenses Capitalized which can be taken from Profit and Loss