Enjoyed this video? Then subscribe to the channel right now, and let's dive into the related topics of ROIC th-cam.com/video/wLvCmFDEBXc/w-d-xo.html and WACC th-cam.com/video/1O-DbtVueMw/w-d-xo.html
I watched your video precisely because the EVA formula was implemented in the Brazilian company that I currently work, your video helped a lot in understanding the formula. Thanks!
It's all an example with numbers I simply picked for illustration purposes. 8% WACC times $150 billion of invested capital is $12B, as 0.08 * $150B = $12B.
That is a good question, Bilal! Sadly, the answer is "it depends". Terms like "invested capital" and "capital employed" are non-GAAP terms, in other words in the real world there is no standardized definition that all companies apply. See the examples in my video on ROIC th-cam.com/video/wLvCmFDEBXc/w-d-xo.html So whenever you see terms like these being used in presentations, always check the appendix for the definition and calculation!!!
Hi Filippo! I had never heard of SVA before you asked the question, but apparently Shareholder value added (SVA) represents a company's worth to shareholders in the absence of liabilities and capital costs.
Hello, Can you help me in mentioned below question? Apple Ltd has deployed a capital of 400 million in Orange Ltd a 100 per cent owned subsidiary company and it incurs a cost of 10 per cent. The after-tax profit generated by the subsidiary company is INR 45 million. Compute the EVA generated by the company?
The wording in the question is a bit odd. In order to get to EVA, I think you need to deduct the "capital charge" from the after-tax profit. With the numbers given, capital charge should be 10% of 400 million. Have another look around 3 minutes into the video, the wording there is slightly different but the idea the same. Hope this helps!
Yes...yes...this is good... but what exactly is "economic value"? Is it a value for the shareholders? Or is it just a value for the overall economy? Maybe it sounds a little mean, but as an investor, I'm more concerned with value being created for the shareholders - regardless of any value created for the overall economy.
Yes, EVA is trying to measure value created for shareholders. The idea is that accounting profit can be "distorted", while economic value tries to compare returns generated versus the cost of capital.
Hey Richard, here's a suggestion for you... Read up or watch the documentaries on Enron ("smartest guys in the room"), Theranos ("out for blood"), Worldcom, Parmalat, Olympus (Michael Woodford - "Exposure"), Bausch and Lomb. Once you understand how these accounting frauds worked, you have a good understanding of how to look for red flags. I once took a short forensic accounting class where the professor showed what happens when companies record fake revenue (the offset entry is fake receivables, which obviously never get collected, and there is no COGS for fake revenue as nothing gets shipped). An interesting one is to review Enron's annual report of the year before they "blew up", and see if you can find the disconnects.
too many abbreviations (wacc,nopat,ebit,eva,roic) .... you didn't clearly define what EVA is without arithmetic... no one cares about the arithmetic, just tell me what the "bottom line" means
EVA is indeed a concept that supposes you already studied and understand WACC, NOPAT, EBIT and ROIC, as it builds on them / combines them. You will find videos for three out of those four topics on my channel, I suggest you watch these first. The core idea of Economic Value Added (EVA) is for a company to generate returns above the required rate of return. Only then do you create value.
Enjoyed this video? Then subscribe to the channel right now, and let's dive into the related topics of ROIC th-cam.com/video/wLvCmFDEBXc/w-d-xo.html and WACC th-cam.com/video/1O-DbtVueMw/w-d-xo.html
Brilliantly simple 6 minutes explanation. Best I have found yet.
Thank you very much, Radu! Please spread the word about the video and the channel.
Thank you, your 6min explanation is clearer than a 1h course
Wow, happy to hear that. Glad I could help you.
omg thank you so much kind sir. you just helped me understand eva and wacc in 6 minutes. something my uni professors were not able to do in 3 months.
Fantastic! Happy to help! Please share the videos with your fellow students, and ace that exam!!!!
Really well explained, the main idea, but also the details - in a very crisp video. Thank you.
Glad you liked it, Dusica! And thank you for taking the time to comment. :-) Have a great weekend!
The only regret i have after watching this video is why didn't I found this channel earlier.
Hello Suraj! Welcome to the channel. More than 160 videos for you to catch up on. ;-)
Perfect explanation, thank you very much!!!!
Glad it was helpful, Kenny! Have you applied the EVA formula yet to any companies?
I watched your video precisely because the EVA formula was implemented in the Brazilian company that I currently work, your video helped a lot in understanding the formula. Thanks!
@@kennypcm Nice to hear that! Happy to help!
very well explained
Thank you! :-)
I found this helpful, thank you.
I'm so glad! Thank you for watching and commenting. Please subscribe, and spread the word!
Thank you! Very helpful
You're welcome!
Very well explained!!!
Thank you very much, Danilo!!!
great stuff, thanks a lot
Glad you liked it!
Cool video lecture! :)
Glad you liked it!
Great video! Only the nose of the boy at the beginning was a bit disturbing hahaah
Thanks, Mike!
Nice
Thanks, Ronnie!
Can I ask, if the company experiences a loss, can EVA calculations be done?
Yes. The calculation can be done, but the outcome will surely be a negative number.
were did you get the 12 billion dollars?
It's all an example with numbers I simply picked for illustration purposes. 8% WACC times $150 billion of invested capital is $12B, as 0.08 * $150B = $12B.
Is invested capital (as referred here) and capital employed the same thing?
That is a good question, Bilal! Sadly, the answer is "it depends". Terms like "invested capital" and "capital employed" are non-GAAP terms, in other words in the real world there is no standardized definition that all companies apply. See the examples in my video on ROIC th-cam.com/video/wLvCmFDEBXc/w-d-xo.html So whenever you see terms like these being used in presentations, always check the appendix for the definition and calculation!!!
@@TheFinanceStoryteller Perfect, thank you so much!
can you discuss about cash value added?
Nope, don't know what it is, so not planning to make a video on it.
Could you also explain SVA, please?
Hi Filippo! I had never heard of SVA before you asked the question, but apparently Shareholder value added (SVA) represents a company's worth to shareholders in the absence of liabilities and capital costs.
Hello,
Can you help me in mentioned below question?
Apple Ltd has deployed a capital of 400 million in Orange Ltd a 100 per cent owned subsidiary company and it incurs a cost of 10 per cent. The after-tax profit generated by the subsidiary company is INR 45 million. Compute the EVA generated by the company?
That sounds like you are asking me to do your homework for you. By doing it yourself, you will learn a lot more!
@@TheFinanceStoryteller Not like that I am stuck in this question I need some clarity that's why I am asking you.
The wording in the question is a bit odd. In order to get to EVA, I think you need to deduct the "capital charge" from the after-tax profit. With the numbers given, capital charge should be 10% of 400 million. Have another look around 3 minutes into the video, the wording there is slightly different but the idea the same. Hope this helps!
thanks. add MVA please.
Thanks for the suggestion! I will look into the topic, and see if there's a "story" there.
How to calculate WACC?
That is explained in this related video: th-cam.com/video/1O-DbtVueMw/w-d-xo.html
دنشوف وين حوصل بالادارية
You didn't tell us the answer to the first question though :(
Good catch, Jason! You would have to apply the EVA formula to each of those 4 companies in order to come up with a comparison (which I didn't do yet).
@@TheFinanceStoryteller I'll have to do that then. I guess it would be good practice, anyway. :)
Yes...yes...this is good... but what exactly is "economic value"?
Is it a value for the shareholders?
Or is it just a value for the overall economy?
Maybe it sounds a little mean, but as an investor, I'm more concerned with value being created for the shareholders - regardless of any value created for the overall economy.
Yes, EVA is trying to measure value created for shareholders. The idea is that accounting profit can be "distorted", while economic value tries to compare returns generated versus the cost of capital.
@@TheFinanceStoryteller Well...alrighty then. Thanks again!
Hey Richard, here's a suggestion for you... Read up or watch the documentaries on Enron ("smartest guys in the room"), Theranos ("out for blood"), Worldcom, Parmalat, Olympus (Michael Woodford - "Exposure"), Bausch and Lomb. Once you understand how these accounting frauds worked, you have a good understanding of how to look for red flags. I once took a short forensic accounting class where the professor showed what happens when companies record fake revenue (the offset entry is fake receivables, which obviously never get collected, and there is no COGS for fake revenue as nothing gets shipped). An interesting one is to review Enron's annual report of the year before they "blew up", and see if you can find the disconnects.
@@TheFinanceStoryteller Okay, good suggestions. Thanks again!
too many abbreviations (wacc,nopat,ebit,eva,roic) .... you didn't clearly define what EVA is without arithmetic... no one cares about the arithmetic, just tell me what the "bottom line" means
EVA is indeed a concept that supposes you already studied and understand WACC, NOPAT, EBIT and ROIC, as it builds on them / combines them. You will find videos for three out of those four topics on my channel, I suggest you watch these first. The core idea of Economic Value Added (EVA) is for a company to generate returns above the required rate of return. Only then do you create value.
Nice