Mejora de la Medición del Desempeño con el vea (EVA) Operativo Y Total (Sharpening Performance Measurement with the Operating and Total EVA)

19 Pages Posted: 1 Apr 2013 Last revised: 13 Apr 2013

See all articles by Rauf Ibragimov

Rauf Ibragimov

Russian Presidential Academy of National Economy and Public Administration

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy

Date Written: March 31, 2013

Abstract

Taking a slightly closer look at the EVA basics prompts that the metric by design is a synthetic mixture of returns from the operating and financing activities, and therefore, yields a biased assessment of both the operating and overall performance. Fundamentally, the scale of the measurement bias depends on the interest tax shield actually obtained in a measurement period and on the book to value ratio, however, there are also other potentially significant sources of distortions induced by the metric design.

An effective way to calibrate measurements is to evaluate the operating and total performance concurrently with the two metrics, the Operating EVA and the Total EVA. Operating EVA is calculated by applying the risk of assets rather than WACC to calculate the capital charge and unaffected by the financing side effects of the firm’s activities. It is unbiased and provides an informative estimate of the efficiency in ongoing operations and a basis for the overall performance assessment with the Total EVA. Both metrics are straightforward for interpretation and computationally simple relative to EVA. From the corporate finance perspective, the proposed dual-metric financial model is consistent with the fundamental approach of valuing a firm by cash flow discounting.

Keywords: financial performance measurement, economic value added, operating EVA, total EVA, residual income, valuation model, market value added

JEL Classification: G32, G39, M21, M41

Suggested Citation

Ibragimov, Rauf and Velez-Pareja, Ignacio and Tham, Joseph, Mejora de la Medición del Desempeño con el vea (EVA) Operativo Y Total (Sharpening Performance Measurement with the Operating and Total EVA) (March 31, 2013). Available at SSRN: https://ssrn.com/abstract=2242555 or http://dx.doi.org/10.2139/ssrn.2242555

Rauf Ibragimov (Contact Author)

Russian Presidential Academy of National Economy and Public Administration ( email )

Vernadskogo Avenue,82
Moscow, Moscow region 119571
Russia
007 495 4347103 (Phone)
007 495 4349027 (Fax)

HOME PAGE: http://www.ranepa.ru/eng/

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy ( email )

Box 90312
302, Towerview Dr, Rubenstein Hall, Room 272
Durham, NC 27708
United States
919-613-9234 (Phone)
919-681-0831 (Fax)

HOME PAGE: http://fds.duke.edu/db/Sanford/faculty/thamjx

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