Modeling the Future Development of Top Company Indicator EVA Equity Using Indicator Breakdown and Sensitivity Analysis on an Example of a Specific Company
Modeling the Future Development of Top Company Indicator EVA Equity Using Indicator Breakdown and Sensitivity Analysis on an Example of a Specific Company

Author(s): Jaromír Vrbka
Subject(s): Politics / Political Sciences, Social Sciences, Economy
Published by: Vysoká škola ekonomická v Praze
Keywords: EVA Equity; breakdown of indicator; management
Summary/Abstract: Purpose: Economic value added focused on equity (i.e. EVA Equity) measures the rate of the evaluation of equity while respecting risk. EVA Equity also reflects the degree of value creation for shareholders. EVA can be used to calculate the value of a company. The indicator is thus designed to have its specific planned value became the main target of the company. This paper aims to break down EVA Equity and to subsequently determine the way individual variables making up the indicator are managed.Design/methodology/approach: The data set contains the financial statements of Budvar, n. p. company. It is an enterprise, which deals with beer production. The analyzed period is from year 2011 to 2015. Further on, external data of the Czech National Bank are used. The set of variables influencing the creation of EVA Equity is determined by the breakdown of EVA Equity. Using sensitivity analysis, the significance of individual variables is defined and the range of significance of individual variables for the company and its management is determined accordingly.Findings: The breakdown of a top indicator -EVA Equity- was conducted. Next, the individual variables involved in the calculation of EVA Equity were identified, which can immediately affect the company and its management. According to methodology and based on the obtained results, a sensitivity analysis was performed and it was determined which variables are more valuable for the company and which have less importance.Research/practical implications: The practical outcome are quantities that the company, in order to be successful, needs to monitor, plan, manage and control the execution of. These variables are reflected in the tactical and operational plans of the company and every manager knows which way to influence them and, conversely, which ways they influence the success or failure of a business.Originality/value: The value of the paper can be seen in the application of EVA into everyday plans of the company through variables that shape the EVA Equity indicator.

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