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Indicators of efficiency of investments

Calculation of key performance indicators in the Budget Plan Express
Payback period – PB
Discounted payback period – DPB
Net discounted (present) value – NPV
Profitability index – PI
Internal rate of return – IRR
Average rate of return – ARR
Modified IRR – MIRR (Modified Internal Rate of Return)
Economic profit measure EVA (Economic Value Added) and other complex indicators

Economic profit measure EVA (Economic Value Added) and other complex indicators


«Economic value added is a measure of the true financial
performance of an enterprise, and a strategy for creating
corporate finance and the well-being of shareholders»
(Joel Stern, one of the developers of the EVA model)

Calculation of additional indicators

Budget-Plan Express, in addition to the main financial and investment indicators, calculates a large amount of data and analytical indicators, based on which it is easy to calculate other indicators that may be useful for analysis. Having a set of necessary data, the development of such indicators will not be very difficult.

To use this data, export it to Excel: "Main menu → Reports → Export to Excel → Export the current worksheet".

For example, in order to calculate EVA (see below), it is enough to export the reports: "Profit and Loss statement", "Cash flow statement" and the table "Financial analysis".


Economic profit measure EVA (Economic Value Added) and other complex indicators

Obviously, what the company manages, it is also necessary to measure it somehow ...

Understanding that, apart from structural capital, the intellectual resource (human capital) plays an important role in the formation of the company's value, led to the creation of new management methods, the basic principles of which are formulated in the value management system (VBM). The need to identify cost management has led to the creation of integrated indicators - "levers" of management, which can be used to maximize value.

Traditional measurements aimed at assessing structural capital are not enough to assess the effectiveness of the company. Therefore, it became logical to use complex indicators reflecting the company's ability to generate added value. In the BSC financial projection, the complex EVA (Economic Value Added) is often used:

    EVA = NOPAT - WACC × Inv

    Where:

    NOPAT (net operational profit after tax) – net operating profit after taxes, but before interest payments;
    WACC – weighted average cost of capital;
    Inv – investment capital.

EVA indicator - the indicator of economic profit (added value) is most objective, but not fully, reflects the quality of management decisions. It can be considered as an alternative to NPV. In essence, this means that the calculation of an investment project based on EVA should almost coincide with the calculation based on NPV.

Along with EVA, the market value of the company is often used - MVA (Market Value Added). As can be seen from the figure, it is not difficult to guess, MVA is calculated from EVA: as a total discounted EVA and reflects the market value added (Market Value Added).

Calculation of additional indicators in the Budget Plan Express. Total discounted EVA and reflects the market value added (Market Value Added). Eva indicator-the indicator of economic profit (value added) most objectively, but not fully reflects the quality of management decisions

In order to assess business units (evaluating the effectiveness of the units) in addition to marginal revenue, most companies use ROCE (return on investment capital):

    ROCE = Sales - Cost/Invest

Analysis of the margin income figures of subdivisions does not give an idea of how the assets are used effectively, and therefore does not allow more objective comparison of the results. ROCE solves this issue. Many companies use ROCE to evaluate the work of the heads of departments. In this case, problems may arise: managers may reject promising projects for the company in order to prevent a decline in ROCE. Therefore, given the expected ROCE and the growth of ROCE, it is also necessary to take into account the significance of the project for the company.





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