【正文】 of EVA is positive indicates that the project is creating value.3. Portfolio analysisThe pany actively manages its portfolio and will need to take strategic decisions. These decisions include both investment and divestment alternatives. As discussed above, it is often not possible to pare absolute EVA’s because the capital charge is based on book value and not on fair value. For active portfolio management it is necessary to analyse the changes in EVA due to different future scenarios. The strategy with the highest increase in Delta EVA will be chosen.In the following example, three strategic alternatives are being discussed: Sell part of the business (alternative 1) Increase investment in the business (alternative 2) Divest the whole business (alternative 3)As the current EVA is negative, the unit does not earn the cost of capital. However, decisions should always refer to the future. The current EVA has a signalling function, but is not sufficient as a basis for making strategic decisions. In the example, projections of Delta EVA show that alternative 2 (‘increase investment in the business’) is the strategy that creates the highest value. This is because the investment leads to profitable growth. EVA ManualAppendixTable of ContentsIII. Appendix: Details of EVA calculation 1A. Improve management decisions by adjusting operating ine and invested capital 11. Selection of adjustments 12. Goodwill 13. Construction in progress 34. Unusual items 45. Off balance sheet liabilities 76. Operating lease 97. Pensions 128. Minority interests 14B. EVA on SBU and Group level 161. Tax management 162. Goodwill for Company A and Company B acquisition 163. Currency Translation Adjustment (CTA) 16C. EVA Calculation Schemes 181. Calculation of invested capital on the operating unit level 182. Calculation of NOPAT on the operating unit level 183. Calculation of invested capital on the group/SBU level 224. Calculation of NOPAT on the group/SBU level 22III. Appendix: Details of EVA calculationA. Improve management decisions by adjusting operating ine and invested capital1. Selection of adjustmentsWhen customising the EVA calculation for XY, the objective was to find the right balance between economic accuracy and functional simplicity and to define a meaningful measure of value creation that is understandable to all users. The process of defining these adjustments focused on:MaterialityAdjustments should make a material difference in EVAMotivational ImpactAdjustments should have the potential to influence decisions and behaviourPracticalityAdjustments should be made subject to data being availableUnderstandabilityAdjustments should not be unnecessarily plex2. GoodwillDescription of the Adjustment:Goodwill amortisation is not included in NOPAT.The full historic goodwill before amortisation is shown in invested capital.Behaviour Expected/Reason for the Adjustment: Goodwill resulting from an acquisition is an investment that does not definitively increase or decrease in value over time. Therefore, we should consider it a permanent investment rather than an eroding investment that needs to be amortised. If we did not make an adjustment and used the accounting amortisation, the full charge for goodwill would be the sum of the amortisation and the capital charge on the net book value. The charge would be at its highest immediately after the acquisition and would decline until the asset is fully amortised。w23 / 42wEVA ManualGeneral ConceptTable of ContentsGeneral ConceptI. Introduction 11. EVA is a management tool that measures true economic profit 12. EVA can be integrated in all key processes 13. Decisionmaking based on EVA 2II. Decisionmaking with EVA 3A. How to build up EVA on operating unit level 31. Overview 32. NOPAT (Net operating profit after tax) 33. Invested capital 44. Cost of capital 65. Focus on Delta EVA 7B. How to build up EVA on the Group and SBU level 8C. Use of EVA in the XY management system 91. Management reporting 92. Capital expenditures 103. Portfolio analysis 11Details of the EVA CalculationIII. Appendix…………………………………………………………………………………………………………….I. Introduction 1. EVA is a management tool that measures true economic profitAll managers of XY should focus on improving the Group’s overall value. With EVA, for the first time, there is a tool that reflects not only the operating performance, but also the expected return on the invested capital of XY. The EVA system encourages managers to think and act like owners, treating the pany’s resources as if they were their own.EVA reflects not only operating profit after taxes, but also takes into account costs for debt and equity capital. Creating shareholder value may be achieved by improving performance, growth, portfolio management and optimisation of capital structure. EVA provides a tool for all of these aspects.EVA is a management tool. It helps managers to evaluate opportunities, set goals, measure results, and benchmark performance. EVA is also an accurate basis for valueoriented incentive pensation schemes.2. EVA can be integrated in all key processes Typically, panies use a variety of conflicting measures such as earnings growth, earnings per share, return on equity, market share, gross and net margin, cash flow, NPV and ROIC. Using a number of different measures leads to conflicting goals. This is why we will use EVA as a single major performance measure.The EVA financial management system supports and motivates valuebased decisionmaking for daytoday operating decisions, budgeting and capital planning and strategic initiatives. By using EVA for all of these pr