Documents

EVA KS

Description
Economic Value Added Krakatau Steel
Categories
Published
of 6
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Related Documents
Share
Transcript
  BUSINESS STRATEGY AND ENTERPRISE MODELLING COURSE (MM 5012) ECONOMIC VALUE ADDED AND MARKET VALUE OF PT KS 2006 - 2016  By: ERIZA AMIR CHAN NIM : 29113084 (Young Executive 49 Class) MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2014  I.   INTRODUCTION PT KS had simulating financial performances for period of 2006  –  2016 with all projected assumptions applied in the simulations. In this case, we will discuss about the EVA and Market Value of PT KS if the simulations are realized. II.   ECONOMIC VALUE ADDED (EVA) A.   DESCRIPTION    Economic Value Added (EVA) is an estimate of a firm's economic profit  –  being the value created in excess of therequired return of the company's investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm's capital. The idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital.    EVA measures the difference, in monetary terms, between the return on a company’s capital and the cost of capital. EVA helps managers to better understand financial goals, and in so doing, it helps them achieve these goals. EVA is not a strategy and should never be thought of as a substitute for one. What EVA can do is put the proper incentives and monitoring systems in place to increase the chances that managers will run the firm in a manner consistent with the creation of shareholder value. B.   CALCULATION    EVA is calculated as NOPAT  –  Capital Charges or (RONA  –  WACC) X Invested Capital where: -   NOPAT = Net Operating Profit After Tax -   Capital Charges = Invested Capital x Cost of Capital. -   RONA = NOPAT / Net Assets -   WACC = Weighted Average Cost of Capital, equals the sum of the cost of each component of capital-short term debt, long term debt, and shareholder’s equity - weighted for its relative proportion, at market value, in the company’s capital structure -   Invested Capital is the sum of shareholders equity, all interest bearing debt, both short term and long term, and other long term liabilities.     EVA calculation of PT KS in 2006 - 2016 PARAMETERS YEARS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 NOPAT (201,519) 60,577 863,626 1,255,075 1,264,258 1,538,957 2,148,929 2,742,032 3,758,020 4,375,100 5,208,040 CAPITAL CHARGES 1,213,382 1,097,880 877,557 997,388 822,457 845,268 1,018,942 1,141,456 1,557,059 1,754,436 1,969,880 EVA = NOPAT  –  CAP CHARGES (1,414,901) (1,037,302) (13,932) 257,686 441,801 693,688 1,129,987 1,600,575 2,200,961 2,620,664 3,238,159 RONA -2.64% 0.88% 15.38% 19.50% 23.62% 27.75% 31.87% 36.00% 35.86% 36.73% 38.60% WACC 15.88% 15.88% 15.63% 15.50% 15.37% 15.24% 15.11% 14.98% 14.86% 14.73% 14.60% SPREAD = (ROIC - WACC) -18.52% -15.01% -0.25% 4.00% 8.26% 12.51% 16.76% 21.01% 21.00% 22.00% 24.00% INVESTED CAPITAL (IC) 7,640,106 6,912,843 5,616,227 6,435,920 5,351,390 5,546,064 6,742,291 7,617,568 10,480,767 11,912,110 13,492,330 EVA = SPREAD X IC (1,414,901) (1,037,302) (13,932) 257,686 441,801 693,688 1,129,987 1,600,575 2,200,961 2,620,664 3,238,159 Based on those calculations in the table above, we know that both formulations of EVA can be used to make the same result. III.   MARKET VALUE ADDED(MVA) A.   DESCRIPTION    Market Value Added = present value of future EVAs    Future EVAs come from two sources: a continuation of the performance levels already achieved and EVA improvement.    When companies make investments or adopt strategies that are expected to deliver a more valuable stream of future EVAs than before, the effect is a simultaneous increase in MVA and excess return. It is appropriate to say that in choosing one strategy over another, we choose the one that is expected to deliver the higher current MVA. As long as the maximization of MVA is expressed as a goal for a proposed investment or strategy made at a point   in time, and not a goal over a period of time, it is entirely equivalent to the maximization of excess return.    If all positive EVAs are treated as distributions (reductions) of invested capital, and all negative EVAs as contributions (additions) to capital, MVA at the end of the observation period will equal excess return.  B.   MVA CALCULATION  of PT KS in 2006  –  2016 each year PARAMETERS YEARS 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EVA (1,414,901) (1,037,302) (13,932) 257,686 441,801 693,688 1,129,987 1,600,575 2,200,961 2,620,664 3,238,159 DISCOUNTED RATE (=WACC) 15.88% 15.88% 15.63% 15.50% 15.37% 15.24% 15.11% 14.98% 14.86% 14.73% 14.60% PV OF EVA = MVA 1,357,465 2,987,955 4,564,758 5,324,123 5,922,118 6,418,403 6,727,040 6,632,933 6,039,973 4,744,368 2,825,619 Based on the table above, we know that at the end of 2006, PT KS has negative EVA but still has positive MVA because in the next year, EVA is projected will be increase so the NPV of EVA in periode 2006  –  2016 is Rp 1,357,465 million and similarly for the next year. Comparison of EVA and MVA of PT KS in 2006  –  2016 periods shown: From the chart, we know that the highest MVA will be achieved in 2012 as long as all the assumptions are realized. IV.   MARKET VALUE (MA) A.   DESCRIPTION    Market Value = MVA + Invested Capital      Market Value of a company is the highest estimated price that a buyer would pay and a seller would accept in an open and competitive market.      Market Value depends on capital market perceptions of a company’s ability to deliver cashflows to its capital providers, with expected future cashflows discounted at a rate of interest that reflects what investors would expect to get if they put their money in companies of similar risk.   EVA (2,000,000) - 2,000,000 4,000,000 6,000,000 8,000,00020062007200820092010201120122013201420152016EVAMVA
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks