(1) It is assumed that when changing any of the variable (NOPAT), capital investment or cost of capital, the remaining variables remain unchanged.
(2) In the calculation of the change in the earning before interest and tax(EBIT) required to achieve the change in NOPAT as predicted by the model, the income tax rate is assumed to be constant. The income tax rate is equal to the income tax divided by EBIT.
(3) The variables that can be controlled for the EVA model are the NOPAT, capital investments(c), and cost of capital (coc). By altering these variables, improvements in EVA can be obtained.
EFFECTIVE STRATEGIC DECISIONS FOR GENERATING EVA
.Establish a clear, unambiguous, definite objective statement, which focuses on generating positive EVA for the firm.
Tapping the various capital resources economically & deciding as to what kind & amount of resources will act as competitive winners for the firm. Key resources are emphasized upon as they act as key contributors to generation of value.
Analysis of present scenario and forecasting the estimation of future environment of financial markets in which the company can procure funds and reinvests itself.
Maximization and protection of returns.
Exhaustive and genuine marketing research to control, estimate and exploit the customer preferences.
Developing the competitive edge for the firm.
Efforts should be taken by the firm to outperform the market.
Overlapping the objectives so the management with that of the investors. Thus the each strategic business decision made by them should focus on value creation achievement.
All business decisions should finally rest on one principle- there should be a trade off between cost of activities & the profits these activities generate.
Create a favorable work environment and work culture for achievement of EVA objectives.
(2) In the calculation of the change in the earning before interest and tax(EBIT) required to achieve the change in NOPAT as predicted by the model, the income tax rate is assumed to be constant. The income tax rate is equal to the income tax divided by EBIT.
(3) The variables that can be controlled for the EVA model are the NOPAT, capital investments(c), and cost of capital (coc). By altering these variables, improvements in EVA can be obtained.
EFFECTIVE STRATEGIC DECISIONS FOR GENERATING EVA
.Establish a clear, unambiguous, definite objective statement, which focuses on generating positive EVA for the firm.
Tapping the various capital resources economically & deciding as to what kind & amount of resources will act as competitive winners for the firm. Key resources are emphasized upon as they act as key contributors to generation of value.
Analysis of present scenario and forecasting the estimation of future environment of financial markets in which the company can procure funds and reinvests itself.
Maximization and protection of returns.
Exhaustive and genuine marketing research to control, estimate and exploit the customer preferences.
Developing the competitive edge for the firm.
Efforts should be taken by the firm to outperform the market.
Overlapping the objectives so the management with that of the investors. Thus the each strategic business decision made by them should focus on value creation achievement.
All business decisions should finally rest on one principle- there should be a trade off between cost of activities & the profits these activities generate.
Create a favorable work environment and work culture for achievement of EVA objectives.
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