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Eva Economic Value Added

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Submitted By kelvin7132
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Jason Coojacinto, Sid Guanio, Kelvin Ong
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1. What is EVA? What are the advantages and disadvantages of using EVA as a measure company performance?
Economic Value Added (EVA) is basically an estimate of a company’s economic profit. It is known to focus on managerial effectiveness in a year which represents the residual income that is in excess after taking out the cost of all capital not considering the charge for equity capital.
An advantage of using EVA to appraise performance is that it takes into account all costs inclusive of the cost of equity capital. The disadvantage faced when using this is the workability of the calculations this require. It is difficult to find the correct cost of equity, EVA is known to be irrelevant for some companies, and lastly is that the EVA value of a big company, which is less efficient than a small company, would still turn out to be greater than that of the small company. 2. Please examine the historical performance of Coca-Cola and PepsiCo in terms of EVA. What trends do you observe? What are the factors behind those trends? What do you think are the key drivers of EVA?
Comparing the historical performance of Coca-Cola and PepsiCo with EVA, it seems that the EVA of Coca-Cola is more stable compared to PepsiCo. However, PepsiCo rises faster than Coca-Cola because it’s EVA surpassed Coca-Cola in year 2000 even if it’s EVA from 1994-1997 was negative. Factors behind those trends | Coca-Cola | PepsiCo. | Unfortunate performance of Douglas Ivester, the former CEO which cost Coca-Cola a big loss in sales volume | Sale of Taco-Bell, Pizza Hut, KFC | Share of carbonated soft drink industry fell from 71.3% to 60.5% in the last decade. | PepsiCo. acquired Tropicana and became orange juice market leader (40%). Led Coca-Cola by 20% | | PepsiCo. entered the bottled water market ahead by 5…...

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