I love your straight to the point, no BS videos. It's so much better than sitting through a lecture. I wish my university, WGU, would hire you. The ROI for them would be incredible.
I am really thankful for your videos. I have an exam coming up about all this and i was really devastated because i didnt understand literally anything. English isnt my native language so i was concered if i could understand your videos (there arent many/good/at all videos to some of the topics in my language) but you explain everything really simple and easy to understand! Thanks! ♡
We meet again ! I used your videos two years ago and I'm back at it. Thank you for the time you put into these videos. You have truly helped me study through college!
Thanks for the clear explication, but I have two questions I would appreciate your point of view over: 1- We deducted CL only, even though CL is used to finance parts of CA like A/P to finance RM inventory, so why not deduct all WC (except cash & equiv.)? especially that WACC is more of long-term Capital cost. 2- In calculating EVA for large investments (or investment in general which have long payback periods) shouldn't the formula be a summation over the life of the investment rather than an annual calculation? Because on an annual base EVA will always be negative for such investments.
since we only calculated invested capital ( *equity* in the formula) why don't we just use return on *equity* in place of WACC (which include combination of debt and equity) ??
Hey thank you so much for the video it was really helpful and helped clear things up for me! I had a question that I can't seem to find the answer for anywhere, I know EVA capitalizes R&D then amortizes it, what happens with Purchased goodwill? do I capitalize it or expense it? and do I amortize it or not? Thanks in advance
First, thanks for the great content you're sharing with us. One thing is not clear for me yet, though... what is the difference between EVA and NPV? From what I understand, they both take into account the cost of capital over time and it's effect on the cashflow. Could you give me a hand?
Great question. EVA and NPV are closely related concepts. NPV is a core principle of corporate finance; it is used to evaluate the value added by a particular project. It is the best way to determine whether a firm should accept or reject a project (e.g., if the NPV of a project is greater than zero, the firm should accept the project, assuming it has unlimited capital). EVA is more commonly discussed with reference to managerial accounting, and attempts to measure whether the company earned an economic profit over the year or quarter. Many people prefer it to net income as a measure of profitability because EVA takes into consideration the cost of capital, whereas net income does not.
So does the EVA formula not take into account the effect of depreciation on income taxes? I'm working through a CPA problem that gives me depreciation expense but then says that depr. expense is irrelevant. I'm thinking, "How could it be irrelevant if depreciation expense directly affects a company's taxes?" Thoughts? It seems that the NOPAT is artificially deflated by not taking into account depreciation.
Wonderful...Just one query Cost Of Capital is it the expenses that we have to incur for the returns that we have to give to the investors OR is it simply the returns that we have to pay to investors ???
Cc is the rate at which you could have invested if you had not taken the current option into consideration. That's something you incur for yourself for tying up money in the business. Most of the times it's the interest forgone or prevailing interest rate given by banks.
How can the total assets - the current liabilities be the invested capital? That sounds more like a figure of profit to me, not like the capital you employed. I am not sure if this is a translation issue of mine because I am german.
"Total Assets MINUS Current Liabilities" gives the same result as "Equity PLUS Non-Current Liabilities" It's a measure of the amount of money that's been invested in the business.
Right, that make sense. NOPAT has deducted interest expense from total revenue, so that's why we deduct current liabilities yes? (since we already accounted for the interest paid for the current liability?)
![[LIVE] : ONE ลุมพินี 89 | คู่เอก "ยอดไอคิว vs คิริลล์"](http://i.ytimg.com/vi/Z3vYkHJ_5Ig/mqdefault.jpg)
I love your straight to the point, no BS videos. It's so much better than sitting through a lecture. I wish my university, WGU, would hire you. The ROI for them would be incredible.
You sir deserve my like & sub for I got an exam tomorrow and you've saved my a lot of time with this video.
+Gijs de laat I'm glad it helped-- I hope you did well on your exam! Best wishes :)
😂😂😂!!! Me to find this topic traumatizing in ACCA not knowing it is residual income from another perspective!
Cheers
This is the first time I comment on TH-cam and it is for you sir! Thank you are doing an amazing job!
+m Gourjon I'm honored! Thank you!!
I am really thankful for your videos. I have an exam coming up about all this and i was really devastated because i didnt understand literally anything. English isnt my native language so i was concered if i could understand your videos (there arent many/good/at all videos to some of the topics in my language) but you explain everything really simple and easy to understand! Thanks! ♡
We meet again ! I used your videos two years ago and I'm back at it. Thank you for the time you put into these videos. You have truly helped me study through college!
i am getting educated day by day only because of you
Thanks for the clear explication, but I have two questions I would appreciate your point of view over:
1- We deducted CL only, even though CL is used to finance parts of CA like A/P to finance RM inventory, so why not deduct all WC (except cash & equiv.)? especially that WACC is more of long-term Capital cost.
2- In calculating EVA for large investments (or investment in general which have long payback periods) shouldn't the formula be a summation over the life of the investment rather than an annual calculation?
Because on an annual base EVA will always be negative for such investments.
very helpful..... thanks from India
Sir, you are a life saver. Thanks a lot
since we only calculated invested capital ( *equity* in the formula) why don't we just use return on *equity* in place of WACC (which include combination of debt and equity) ??
Thanks so much! This was very helpful.
It would be more correct to consider Debt and Equity as the total Commited Capital.
Michael this was excellent, thank you so much.
Would the answer to your final question of "Does this investment exceed the cost of capital and by how much?" be:
Yes, by $1,400?
Thank you!
Hey thank you so much for the video it was really helpful and helped clear things up for me! I had a question that I can't seem to find the answer for anywhere, I know EVA capitalizes R&D then amortizes it, what happens with Purchased goodwill? do I capitalize it or expense it? and do I amortize it or not? Thanks in advance
First, thanks for the great content you're sharing with us. One thing is not clear for me yet, though... what is the difference between EVA and NPV? From what I understand, they both take into account the cost of capital over time and it's effect on the cashflow. Could you give me a hand?
Great question. EVA and NPV are closely related concepts. NPV is a core principle of corporate finance; it is used to evaluate the value added by a particular project. It is the best way to determine whether a firm should accept or reject a project (e.g., if the NPV of a project is greater than zero, the firm should accept the project, assuming it has unlimited capital). EVA is more commonly discussed with reference to managerial accounting, and attempts to measure whether the company earned an economic profit over the year or quarter. Many people prefer it to net income as a measure of profitability because EVA takes into consideration the cost of capital, whereas net income does not.
I think I understood... NPV is related to the future and EVA to the past. Is this correct?
That's a good way of putting it!
Thank you very much!
No problem!
they gave us their money, they expect a return!
money is not free!
So does the EVA formula not take into account the effect of depreciation on income taxes? I'm working through a CPA problem that gives me depreciation expense but then says that depr. expense is irrelevant. I'm thinking, "How could it be irrelevant if depreciation expense directly affects a company's taxes?" Thoughts? It seems that the NOPAT is artificially deflated by not taking into account depreciation.
NOPAT is equivalent to: operating profit * (1 - tax rate). Thus, it includes the effect of the depreciation tax shield as you suggest.
Thanks!
One thing I dont understand, sir. WACC is the rate of return of debts and equity, why the formula only use it to multiply equity only?
Wonderful...Just one query
Cost Of Capital is it the expenses that we have to incur for the returns that we have to give to the investors OR is it simply the returns that we have to pay to investors ???
Cc is the rate at which you could have invested if you had not taken the current option into consideration. That's something you incur for yourself for tying up money in the business. Most of the times it's the interest forgone or prevailing interest rate given by banks.
so its like opportunity cost?
yes it's an opportunity cost in that perspective.
You are a boss
😎
oh ! you are the best !!!!
+hop mini Thank you! Good luck with your exams!!
What is the role of non current liabilities here?
Anyone else finding the video is not visible?
How can the total assets - the current liabilities be the invested capital?
That sounds more like a figure of profit to me, not like the capital you employed. I am not sure if this is a translation issue of mine because I am german.
Long term liabilities is the invested capital, thats why its not deducted from the computation
Hi. Why is it that we minus current liabilities from total assets?
"Total Assets MINUS Current Liabilities" gives the same result as "Equity PLUS Non-Current Liabilities"
It's a measure of the amount of money that's been invested in the business.
Right, that make sense. NOPAT has deducted interest expense from total revenue, so that's why we deduct current liabilities yes? (since we already accounted for the interest paid for the current liability?)
Well done, sir
wow thank u!
No problem!
I can't watch a clear video.
The video is broken for me
EVAngelion
Thanks!
Worst