Nopat, Eva, Mva, and Fcf

Chapter 3 discusses NOPAT, EVA, MVA, and FCF. What are these? What do they add to the data already interpreted? Who uses this information? Research beyond the text and provide documentation.

NOPAT

NOPAT= BEIT (1-Tax rate)

NOPAT= EBIT Operating Profit× (1-Tax rate)

NOPAT is short for Net Operating Profit after Taxes. It shows a company’s operating income when a company does not have any liabilities. The net operating profit after taxes is the earning before interest and tax without the amount of tax. It shows added value of a company which is reverted to stockholders and creditors. That is, the amount of NOPAT is the operating profit which represents the operating performance of the company.

NOPAT is frequently used internally as a target for firm's management, rather than externally as an evaluation measure by investors. A company can know how much cash they generate from Operating activity. Analyzing NOPAT, a company may concern some sections to increase revenues such as quality of product, customer services, production mix, price strategy, efficiency of sales brunch, and logistics. In addition, they may concern another section to reduce cost such as variable cost per unit, Headquarter expense, productivity of executives, efficiency of process, and motivation of executives.

A crucial weakness of NOPAT is that it is distorted by the different tax management of debt and equity. The returns to both bondholders and stockholders are calculated after tax, but the level of debt affects the level of tax and this is not accurate.

EVA

EVA=NOPAT- after-tax dollar cost of capital used to support operation

EVA=EBIT (1-tax rate)-(total net operating capital) (WACC)

EVA is short for Economic Value Added. EVA was suggested by Stern Stewart＆Co. in 1982. Stern Stewart &Co. defines EVA management system by four key elements, which are Measurement, Management System, Motivation, and Mindset. Measurement means how much a company either...