November 2007
Intermediate to advanced
469 pages
16h 6m
English
Content preview from Valuation for Mergers, Buyouts, and Restructuring, Second EditionBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
Chapter 5
Economic Value Added
5.1 MEASURING VALUE CREATION
This chapter examines the economic value added (EVA)1 approach to valuation and discusses the similarities and differences between EVA and free cash flow. EVA is not just a restatement of DCF but an important complement that should have a place in every analyst's toolkit. While the applicability of the EVA concepts is wide-ranging and includes the design of managerial compensation systems, in this book we are interested in the use of EVA for estimating the sources of value creation and valuing strategic and restructuring decisions.2
Firms create value by investing in projects with returns in excess of their cost of capital. The value created by the firm is thus the difference between the present value of its future cash flows and the capital invested. In this context, the term “economic value-added” refers to a periodic measure of the value created by the firm. It is obtained by subtracting from operating income after taxes the cost of capital utilization. This measure has been found useful in evaluating the performance of companies and their business units and in developing incentive compensation schemes for aligning the interest of managers with those of the owners. It also provides a useful interpretation of free cash-flow valuation.
Economic value-added is referred to as “economic profit” in the economics literature, and some of the accounting and control literature has long recognized the cost of the total capital ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.