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a) Non-cash expenses incurred in – Previous years – should be added to capital employed ,right?
say 1000 in 2016 (current year), 1000 in 2015,1000 in 2014. So capital employed should be increased by 2000 for year 2014 and 2015. right?b) instead of non cash expense above, if it was Marketing expenditure (long term) or Research and Development 2000 would be added to capital employed figure.
2-if non cash expense is capitalized ,does it have to be depreciate(economic) if it has useful life?
3-Operating lease when treated as financial lease ,Net book value of asset at start of year should be considered for Capital employed figure?
4-How to treat amortization of goodwill for EVA calculation?
5-June 2012 Q1-Metis ,in calculation of NOPAT for EVA , NOPAT is calculated as PBIT x (1-Tax) , there is no attempt to include tax benefit over interest,although question gave data for interest 8.4% per year. (am i missing something ?)
1 a Yes in principle, but note 4 of the question overrides that to try to make it simpler for you.
1 b Yes (except for note 4)
The adjustments are usually consistent between the SOFP and P&L Ac: if you add back an expense for a year, it affects the capital employed at the end of that year, but not the opening capital employed.
2 A non cash expense is not the same as R&D expenditure etc. They are usually provisions of some sort that should not have been made for EVA purposes.
3 Its carrying value should be added to the capital employed at the start of the year.
4 Amortization of GW should be added back to profits – not cash and too arbitrary.
5 NOPAT is before interest and after tax ie as though there is no interest effect of any sort. PBIT is before interest, so all you need to do is tax off tax. If you had started with the profit after interest and tax and worked back to NOPAT, then adjusting for the interest would remove the interest but you would also have to adjust for the fact that the tax would be higher. Hence add back interest (1 – T) to PAT.
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