Publication detail

Economic Value Added as a Dependence on the Corporate- and Market-life Cycle

KONEČNÝ, Z.

Original Title

Economic Value Added as a Dependence on the Corporate- and Market-life Cycle

Type

journal article - other

Language

English

Original Abstract

Economic value added (EVA) is an indicator, which is widely used as the main tool for financial analysis. There are two methods of calculating it. The original method which was made by Stern&Stewart is defined as the net operating profit after taxes minus the cost of capital. The second method which was developed and used by the "Czech Ministry of Industry and Trade", indicates that, the economic value added is the difference between return on equity and the alternate cost of equity, that is composed of separate risk rewards, and this "spread" is consequently multiplied by the equity. Economic value added depends on many factors. Whereas some of them are controllable by the company, others are not. This article is focused on the relationship between economic value added and the corporate- vs. market life cycle. This is because, there is an assumption that conditions for developing EVA changes depending on the actual phase of corporate- and market life cycle. In this research, the model by Reiners (2004) is used to identify the phases of corporate- and market life cycle and the method provided by the "Czech Ministry of Industry and Trade" is used to calculate EVA. However, there is a consideration of the relativity of EVA in the form of "spread" because of the intercompany comparison. The study found that, the highest spread is achieved by companies that are in the phase of expansion and the phase of market expansion. On the contrary, companies in the phase of declension during market declension achieved the lowest and negative spread.

Keywords

alternate cost of equity, corporate life cycle, economic value added, market life cycle, return on equity, spread

Authors

KONEČNÝ, Z.

RIV year

2011

Released

30. 6. 2011

Publisher

FAME Zlín

Location

Zlín

ISBN

1804-171X

Periodical

Journal of Competitiveness

Year of study

2/2011

Number

2/2011

State

Czech Republic

Pages from

71

Pages to

82

Pages count

12

BibTex

@article{BUT72370,
  author="Zdeněk {Konečný}",
  title="Economic Value Added as a Dependence on the Corporate- and Market-life Cycle",
  journal="Journal of Competitiveness",
  year="2011",
  volume="2/2011",
  number="2/2011",
  pages="71--82",
  issn="1804-171X"
}