Advantages Of Eva As Stern And Stewart's Advantages And Disadvantages

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Introduction Maximize the shareholders profit is the aim of all companies, despite the natural of the organizations or the size, by increasing the company share and directed all activities to that goal (Groth, et. Al., 1996), through performance measure tools. Q1 A : The definition of EVA and its advantages and disadvantages will be discuss. Traditional accounting based performance measures is not given a real picture of the organization performance (Biddle, et;al.1997), therefore there is a need to come with new measure tool which give the real financial performance of the company. EVA is تعريف EVA can be achieved through Economic Profit(EP) which is called as EVA as Stern and Stewart identified (A Ehrnbar, 1998), which…show more content…
Research shows that only five to ten adjustments is done only. In some firms EVA has no effect on stock returns, so EVA can't be trusted as measure tool and its questionable (palliam, 2006), while (Zaima, 2008) finding, weak association of EVA with stock returns., and the firm that used EVA is not superior than other. (Athanassakas,2007) made a comparison in Candian firm that use EVA against the other, finding big organization only use EVA and its stock value better. Trying to approve that organizations and investors can substitute RI and CFO by EVA concluding that information provided by RI , EVA and CFO are equals.(Mashayekhi, et,. Al,2007). On the other hand, a study for 41 firms in Amman stock change using capital asset pricing model(CAPM) to test the relation between EVA and stock return conclude that EVA explained only 17.1% while the tools: BV, DPS, EPS,ROE and CFO explain 82.6% from the change of the change in firms market value. Question1. B: The calculation of XYZ company performance in terms of EVA over the period: 2011-2015 and the analysis of the performance will be discuss. The equation to calculate EVA : EVA = NOPAT-(R *…show more content…
In conclusion EVA does not dominate earnings with stock returns for XYZ company in five years period of study. Q1C: The important of weighted average cost of capital (WACC) and who set the WACC will discuss. WACC is widely used by financial analysis to evaluate the future project of the company. Normally, WACC used to computing the cash flows to a company on future project to discount cash flow in the present value. WACCis a calculation of organization's cost of capital in which each category of capital is proportionately weighted. The importance and usefulness of WACC, as a financial tool for investor and firms is well accepted among the financial analysts. During making financial decisions, managers are assumed to have a target capital structure in their mind according to the relative propations of equity, preference shares and loans may vary . The cost of capital is decided by investors to make investment decisions and evaluate projects with similar and dissimilar risks. Calculation of important metrics of appraisal like net present

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