Quote of the Day

Success is a lousy teacher. It seduces smart people into thinking they can't lose.

Bill Gates

Impairment of Assets

Concept Briefing:

Impairment of assets is an accounting standard (IAS 36) addressing mainly accounting for impairment of goodwill, intangible assets and property, plant and equipment. The standard includes requirements for identifying an impaired asset, measuring its recoverable amount, recognising or reversing any resulting impairment loss, and disclosing information on impairment losses or reversals of impairment losses.

Continue reading 24 Jan 2007 08:12:47

EVA Momentum

EVA Momentum is the change in a business's EVA divided by the prior period's sales. It is introduced as a more reliable business performance metric compared to EVA. The consultants Bennett Stewart and Joel Stern who developed the ratio claim that it is the one ratio that can't be manipulated. It's the only percent metric where more is always better than less. It always increases when managers do things that make economic sense. In order to to get EVA momentum right, business managers needs to refrain from being obsessive about sales. If increase in sales doesn't boost EVA, it does nothing to create value. Managers should consider bailing out of EVA-negative businesses and annihilating wasted capital.

30 May 2011 04:08:38

Economic Value Added

Concept Briefing: Economic value added or EVA is the value of an activity that is left over after subtracting from it the cost of executing that activity and the cost of having lost the opportunity of investing consumed resources in an alternative activity. In business terms, one could calculate EVA as Income from Operations minus potential income from investing the amount of capital employed including equity in sovereign debt, if sovereign debt can be considered an alternative opportunity to invest capital.

The formula for calculating EVA is as follows:

EVA = Net Operating Profit After Taxes (NOPAT) - (Capital x Cost of Capital)

Shareholders of the company will receive a positive economic value added when the return from the equity employed in the business operations is greater than the cost of that capital. Any value obtained by employees of the company or by product users is not included in the calculations.

See also EVA Momentum.

30 May 2011 04:03:22

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