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原文：
EV
A: A better financial
reporting tool
Economic
Value Added (EV
A) is a financial
performance measure being adopted
by
many
companies
in
corporate
America.
This
new
metric,
trademarked
by
Stern
Stewart
and
Company,
is
a
profit
measure
based
on
the
concept
of
true
economic
income which
includes the cost of capital for all types of
financing. EV
A provides a
more
comprehensive
measure
of
profitability
than
traditional
measures
because
it
indicates how well a firm has performed
in relation to the amount of capital employed.
This
article
summarizes
the
EV
A
concept
of
measuring
profitability,
the
EV
A
calculation
and the benefits of adopting an EV
A
framework.
The EV
A Concept
of Profitability
EV
A is based on the concept
that a successful firm should earn at least its
cost of
capital. Firms
that
earn
higher returns than financing
costs benefit
shareholders and
account for increased shareholder
value.
In its simplest
form, EV
A can be expressed as the
following equation:
EV
A = Operating Profit After
Tax (NOPAT) - Cost of Capital
NOPAT
is
calculated
as
net
operating
income
after
depreciation,
adjusted
for
items
that
move
the
profit
measure
closer
to
an
economic
measure
of
profitability.
Adjustments
include
such
items
as:
additions
for
interest
expense
after-taxes
(including
any
implied
interest
expense
on
operating
leases);
increases
in
net
capitalized R&D expenses; increases in
the LIFO reserve; and goodwill amortization.
Adjustments made to operating earnings
for these items reflect the investments made
by the firm or capital employed to
achieve those profits. Stern Stewart has
identified
as many as 164 items for
potential adjustment, but often only a few
adjustments are
necessary to provide a
good measure of EV
A.[1]
Measurement of EV
A
Measurement
of
EV
A
can
be
made
using
either
an
operating
or
financing
approach.
Under
the
operating
approach,
NOPAT
is
derived
by
deducting
cash
operating expenses and depreciation
from sales. Interest expense is excluded because
it is
considered as
a financing charge. Adjustments,
which are
referred to as
equity
equivalent
adjustments, are designed to reflect economic
reality and move income and
capital
to
a
more
economically-based
value.
These
adjustments
are
considered
with
cash taxes deducted to
arrive at NOPAT.
EV
A
is
then
measured
by
deducting
the
company's
cost
of
capital
from
the
NOPAT value. The amount of capital to
be used in the EV
A calculations is the
same
under either the operating or
financing approach, but is calculated differently.
The
operating
approach
starts
with
assets
and
builds
up
to
invested
capital,
including
adjustments
for
economically
derived
equity
equivalent
values.
The
financing approach, on
the other hand, starts with debt and adds all
equity and equity
equivalents to arrive
at invested capital. Finally, the weighted average
cost of capital,
based on the relative
values of debt and equity and their respective
cost rates, is used
to
arrive
at
the
cost
of
capital
which
is
multiplied
by
the
capital
employed
and
deducted from the NOPAT
value. The resulting amount is the current
period's EV
A.
The
remainder
of
this
article
summarizes
the
financing
approach
because
it
emphasizes the significance of capital
employed and illustrates how accounting rules
impact the calculation of
EV
A. Exhibit 1 on page 33 shows a
sample calculation of
EV
A.
EV
A Calculation
and Adjustments
As stated
above, EV
A is measured as NOPAT less a
firm's cost of capital. NOPAT
is
obtained
by
adding
interest
expense
after
tax
back
to
net
income
after-taxes,
because
interest
is
considered
a
capital
charge
for
EV
A.
Interest
expense
will
be
included
as part of capital charges in the after-tax cost
of debt calculation.
Other
items that may require adjustment depend on
company-specific activities.
For
example,
when
operating
leases
rather
than
financing
leases
are
employed,
interest expense is not recorded on the
income statement, nor is a liability for future
lease payments recognized on the
balance sheet. Thus, while interest is implicit in
the
yearly lease payments, an attempt
is not made to distinguish it as a financing
activity
under GAAP.
Under
EV
A,
however,
the
interest
portion
of
the
payment
is
estimated
and
the
after-tax
amount
from
it
is
added
back
into
NOPAT
because
the
interest
amount
is
considered
a
capital
charge
rather
than
an
operating
expense.
The
corresponding
present value of future lease payments
represents equity equivalents for purposes of
capital
employed
by
the
firm,
and
an
adjustment
for
capital
is
also
required.
See
Exhibit 1 for sample
adjustments commonly used in the calculation of
EV
A.
R&D
expense
items
call
for
careful
evaluation
and
adjustment.
While
GAAP
generally
requires
most
R&D
expenditures
to
be
expensed
immediately,
EV
A
capitalizes
successful
R&D
efforts
and
amortizes
the
amount
over
the
period
benefiting the
successful R&D effort.
Another
example
of
an
EV
A
adjustment
is
the
LIFO
reserve
increase.
The
increase is added back
to profit because it converts inventory from a
LIFO to FIFO
valuation,
which
is
a
better
approximation
of
current
replacement
cost.
The
full
amount
of the LIFO reserve represents
past
holding gains
and
accordingly is
added
back to
the equity component to reflect the capital
invested by the firm in inventory
not
yet reflected in equity under GAAP.
Other
adjustments
recommended
by
Stern
Stewart
include
the
amortization
of
goodwill. The annual amortization is
added back for earnings measurement, while the
accumulated
amount
of
amortization
is
added
back
to
equity
equivalents.
Goodwill
amortization is handled in this manner
because by
of
return
reflects
the
true
cash-on-yield.
In
addition,
the
decision
to
include
the
accumulated
goodwill
in
capital
improves
the
real
cost
of
acquiring
another
firm's
assets regardless of the manner in
which the acquisition is accounted. While the
above
adjustments are common in
EV
A calculations, according to Stern
Stewart, those items
to be considered
for adjustment should be based on the following
criteria:
Materiality:
Adjustments should make a material difference in
EV
A.
Manageability: Adjustments should
impact future decisions.
Definitiveness: Adjustments should be
definitive and objectively determined.
Simplicity: Adjustments should not be
too complex.
If an item
meets all four of the criteria, it should be
considered for adjustment.
For example,
the impact on EV
A is usually minimal
for firms having small amounts
of
operating leases. Under these conditions, it would
be reasonable to ignore this item
in
the calculation of EV
A. Furthermore,
adjustments for items such as deferred taxes
and
various
types
of
reserves
(i.e.
warranty
expense,
etc.)
would
be
typical
in
the
calculation
of
EV
A,
although
the
materiality
for
these
items
should
be
considered.
Unusual gains or
losses should also be examined and eliminated if
appropriate. This
last item is
particularly important as it relates to
EV
A-based compensation plans.
The Significance of the
Capital Charge
Under
traditional
financial
reporting,
a
cost
rate
is
not
assigned
for
the
equity
used to finance operations. Thus, the
use of net income as a performance measure is
limited by the exclusion of that cost.
In addition, when used in calculations such as
return on equity, net
income
also
includes the accounting
distortions
included in
its
calculation and that of book value.
EV
A,
on
the
other
hand,
through
its
adjustment
efforts,
seeks
to
eliminate
the
impact
of
accounting
distortions
while
treating
the
impact
of
financing
costs
more
comprehensively
in
its
capital
cost
charge.
Therefore,
a
truer
measure
of
economic
profit is provided
by EV
A than that provided by the use of
traditional GAAP-based
measures. This
may be significant because some companies spend
heavily on R&D
and
the
accounting
treatment
for
this
and
certain
in
tangibles
is
not
included
on
GAAP-
based
balance
sheets.
EV
A
provides
a
way
to
compare
performance
among
firms impacted by
these accounting weaknesses.
The
specific
amount
of
the
capital
charge
for
EV
A
is
based
on
the
amount
of
equity
equivalents
determined
after
adjustments,
multiplied
by
the
capital
cost
rate.
The
capital
cost
rate
is
based
on
the
individual
cost
rates
for
both
debt
and
equity.
While
the
cost
rate
for
debt
can
be
readily
determined,
the
rate
for
equity
requires
some effort.
The cost
for equity can be measured by
using the capital
asset
pricing
model, or other risk premium
approaches.
Once
that
rate
is
determined,
it
is
combined
with
the
relative
proportions
of
capital to produce the
weighted average cost of capital (WACC). It is
that overall rate,
when combined with
all capital including equity equivalents, that
produces the overall
capital charge
used in EV
A. After the capital charge
is calculated and deducted from
NOPAT,
the full extent of EV
A' s benefits can
be observed, because all opportunity
costs
involved
in
the
production
of
income
have
been
measured
and
included
in
profitability. An example of the WACC
is shown in Exhibit 1.
EV
A-Based Compensation
Plans
For
firms
that
reward
managers
based
on
performance,
EV
A
can
offer
advantages over traditional profit-
based plans. First, by tying compensation to a
better
performance metric, the company
can achieve a better matching of its own
objectives
with
those of the
manager. Second, EV
A can help reduce
some conflicts
of interest
often associated with managers and
profitability measurement. Because an objective
of
EV
A
is
to
eliminate
the
impact
of
accounting
distortions
on
profitability
and
the
influence
of management in its calculation, EV
A
is a better representation upon which
to reward executives.
It should be noted that EV
A
measurement is not without subjective elements. It
may
be
necessary
to
involve
an
independent
committee
to
determine
the
appropriateness
of
specific
EV
A
adjustments
and
how
to
best
handle
unusual
situations.
Stern
Stewart
also
recommends
that
EV
A-based
bonus
systems
involve
some
form
of
deferral
of
pay
with
the
full
amount
of
EV
A
bonuses
dependent
on
long-term success.
This
feature
of
paying
only
a
portion
of
the
current
amount
and
banking
the
remainder for the future is an
important component of the system and is designed
to
enhance long-term loyalty to the
firm. Bonuses should also be uncapped and include
stock
options,
thereby
turning
managers
into
owners.
The
ability
of
the
system
to
lower
bonuses
based
on
subsequent
performance
is
one
feature
that
makes
EV
A
systems
fair to
both
the
company and its managers. Thus,
EV
A and its inclusion in
compensation, rewards long-term success
and helps the company promote this aspect
of corporate performance.
The
overall
success
of
the
plan
is
dependent
on
several
important
factors
including the ability of all employees
to understand and agree with its goals. To reach
this objective, it is necessary to
provide focused training of EV
A to all
employees in
the company. In that way,
everyone better understands the philosophy and
their role in
the
system.
While
this
training
may
take
considerable
time
and
effort,
it
is
usually
rewarded by sustained improvements in
EV
A.
EV
A Drivers
Another
advantage
of
EV
A
systems
is
the
emphasis
on
EV
A
drivers
and
the
contribution
of
certain
activities
to
EV
A.
When
implementing
EV
A,
firms
seek
to
determine
those
areas
of
the
business
most
responsible
for
success.
By
isolating
activities, such
as inventory management or capacity utilization,
firms can judge the
value
of
these
on
projects,
divisions,
etc.
Thus
management
can
focus
on
ways
to
increase economic value,
rather than on reported numbers alone. By
including capital
contributions
which do
not
require a stock price, firms
are
also
able to
use EV
A in
evaluating the performance of
individual units or divisions of the firm as well
as the
managers who run those
businesses. EV
A helps focus on
improving operating profits
without
tying
up
more
capital
in
the
business,
curtailing
or
liquidating
investments
that do not meet
capital costs, and/or reducing the cost of
capital. Management actions
such as
cost reductions, improvements in technology,
reduced working capital, or the
optimal
use of debt, represent the types of benefits
resulting from EV
A analysis and
implementation.
Share Price and EV
A
A controversy that
surrounds EV
A is whether it correlates
well with a firm's stock
prices
as
claimed
by
Stern
Stewart.
While
many
believe
that
it
does,
the
results
of
several
studies
are
mixed.[3]
Nevertheless,
many
seem
convinced
of
the
overall
benefit
of
EV
A.
Therefore,
firms
contemplating
the
adoption
of
EV
A,
or
any
performance-based
measure
used
for
decision
making
and
compensation,
should
examine
their
own
individual
characteristics,
the
underlying
theory
of
the
measure
sought, and the
likelihood that the measure selected will capture
the attributes it seeks.
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