【正文】 Shareholders expect a return as well. XY will eventually need new equity from the capital market. Only if shareholders anticipate that XY will be able to meet their expectations will they be willing to invest new capital on favourable terms. This expected return on equity can be measured and is part of the cost of capital.In the Weighted Average Cost of Capital (WACC) the cost of debt and the cost of equity are bined, with weights based on the debt/equity ratio.WACC = %debt * Net Cost of Debt + %equity * Cost of EquityUsing this approach countryspecific WACC’s are calculated. To illustrate the formula the WACC calculation for one country is shown. The cost of debt is 3,9% aftertax. The shareholders expect a return of 10,5%, a higher figure because the risk is higher than for a debt investment. The debttomarket value (leverage) ratio is 52%: Cost Weight Weighted Cost Debt after tax 3,9% 52% 2,0% Equity 10,5% 48% 5,1% Weighted Average Cost of Capital 7,1% (rounded 7%) You can find the specific WACC of different countries on the Intranet under Group functions/Reporting, Controlling, Investor Relations (RCI)/WACC.5. Focus on Delta EVA If you have calculated EVA for your business, you may have found out that it is not parable to other units. This is due to the fact that invested capital is stated at book value, which often does not reflect fair value. Does that mean that EVA does not work? No. As absolute values are sometimes not parable, we focus on Delta EVA, which reflects the change in EVA from one period to another. EVA is a management tool. It can help managers to evaluate opportunities, set goals, measure results, benchmark performance and deliver incentive pensation.Delta EVA is the measure because management action should always be directed towards the future when evaluating opportunities, an increase of EVA gives the right signal when setting goals, Delta EVA gives appropriate incentives when measuring results, Delta EVA shows a parable figureThe following example pares the reporting of a unit that belongs to the Group for a long time to the reporting of a recently acquired unit. Both panies have a NOPAT of 120. Due to depreciation, the book value of assets of the pany that has been part of the Group for a long time is much lower than the book value of assets of the recently acquired pany. Both units invest in a new project that is equally profitable:Because of different levels of invested capital, the EVA of the existing pany is much higher than the EVA of the new pany. The example shows that Delta EVA correctly indicates the performance of the units because it reflects the profitability of the new project. B. How to build up EVA on the Group and SBU levelValueoriented decisions are taken on all corporate levels. The EVA definition applied on the respective level reflects managers’ responsibilities:As pared to the EVA definition on the operating unit level, the following items are treated differently on the Group and SBU level: Taxes Goodwill from the acquisition of A and B Currency Translation Adjustment (CTA)For details of the EVA calculation on the group and SBU level, see Appendix B.C. Use of EVA in the XY management systemFrom 2002 onwards all operating units will report EVA on a quarterly basis. In the following, examples for EVA reporting are shown. Please be aware that this is not the final design, but gives you an impression of the analytical features of the tool.1. Management reportingThe following example shows the EVA analysis for an operating unit:The following conclusions can be derived from this example: Operating ine increased by 300 or 30%. Detailed analysis is provided in the ine statement and the variance analysis. The increase in capital charges outweighed the positive development of NOPAT. Analysis of the changes in invested capital shows that the increase in the capital charge is due to the following factors: The book value of tangible assets increased, which means that the investments of the pany were higher than the depreciation, and the pany could not improve its operating ine to the same extent. Nonconsolidated investments increased by and did not earn the cost of capital Net working capital increased. The payment time for accounts receivable increased, while the time in which the pany paid its creditors decreased. Additionally, Delta EVA was reduced by nonoperating or exceptional losses which resulted in a Delta EVA nonoperating of –30 (For details of the adjustment for unusual items, see Appendix chap. 4).2. Capital expenditures The EVA system also supports decisions on capital expenditures. Decisions on investments will be based on the following rule: An investment should only be made if the present value of future EVA’s is positive. Essentially, the EVA investment model provides the same result as a Free Cash Flow analysis. The present value of EVA equals the net present value of cash flows. EVA has the advantage that it has a memory for the invested capital and can be used for performance measurement purposes as well as for investment decisions. In contrast to the Free Cash Flow method, the EVA system allows an integrated approach whereby the capital expenditure analysis shows annual contributions that will be managed via the EVA management system. The following example shows an EVA based investment analysis:In the example, an investment of is made at the end of year 0 (corresponding to the beginning of year 1). Starting from year 1, the investment creates operating profit. The book value of the investment is depreciated over five years with the book value at the beginning of each period being the basis for calculating the capital charge. The fact that the present value of EVA is positive indicates that the project is creating value.