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Hi Sir,
I do not understand the following statements :
LOL Cards (APM 12/10) answers
– “variables within EVA that drives performance (PBIT) can be used by management to achieve value based target set down from strategic valued based goals”– EVA can be manipulated by choosing projects with low set-up cost to massage the initial EVA figure which then falls in later yrs.
– Amount of OH allocated to individual products bears little resemblance to the amount of overheads cost actually incurred by products.
Will appreciate your help if you can explain the above statements.
Thanks!
1 If the company wants EVA maximised then, in general, hitting a simpler target like increasing PBIT will help.
2 EVA could be boosted now by picking projects that perform well now, even though EVA might fall in later years if the project returns decline
3 Overhead appointment is arbitrary
Hi Sir,
LOL cards answers
– EVA is equivalent to discounted cashflow in the long term which is a widely used method of valuing shares by equity analysis.
Will appreciate if u can explain the above statement as I do not understand the statement above.
My understanding is that EVA is derived from NOPAT- (wacc * capital employed)
Thanks for your help.
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