Value-Based Management: Lecture 3
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Questions and Answers

What is the main difference between EVA and RONA?

  • EVA is a measure of profitability, while RONA is a measure of efficiency
  • EVA is a measure of efficiency, while RONA is a measure of profitability
  • EVA is a monetary return, while RONA is a percentage return (correct)
  • EVA is a percentage return, while RONA is a monetary return

    • What is the relationship between EVA and WACC?

  • EVA is the sum of RONA and WACC
  • EVA is greater than WACC
  • EVA is the difference between RONA and WACC (correct)
  • EVA is equal to WACC

    • Why is EVA a better measure of performance than RONA?

  • Because EVA is a more complex calculation
  • Because EVA is a measure of efficiency
  • Because EVA takes into account the cost of capital (correct)
  • Because EVA is a percentage return

    • What is the inventory turnover ratio for Siemens in 2022?

    <p>4.74</p> Signup and view all the answers

    What is the formula for calculating EVA?

    <p>EVA = (RONA - WACC) · invested capital</p> Signup and view all the answers

    What is the purpose of using EVA as a performance measure?

    <p>To measure the value created by a company</p> Signup and view all the answers

    What is the total asset turnover ratio for Siemens in 2022?

    <p>0.49</p> Signup and view all the answers

    What is the debt to equity ratio for Siemens in 2022?

    <p>1.04</p> Signup and view all the answers

    What is the operating margin for Siemens in 2022?

    <p>0.0613</p> Signup and view all the answers

    Why is it important to consider the benchmarks when performing ratio analysis?

    <p>To compare the performance of the firm with the industry average</p> Signup and view all the answers

    What is the limitation of ratio analysis when firms have different accounting methods?

    <p>Ratios are not comparable between firms</p> Signup and view all the answers

    What is the primary goal of Value-Based Management?

    <p>Increase Shareholder Value</p> Signup and view all the answers

    What is the formula to calculate EVA?

    <p>NOPAT - Capital Charges</p> Signup and view all the answers

    What is the Working Capital Requirement (WCR) representative of?

    <p>The company's net investment in the operating cycle</p> Signup and view all the answers

    What is the purpose of the EVA balance sheet?

    <p>To distinguish net assets from invested capital</p> Signup and view all the answers

    What is the risk of using RONA as a performance measure?

    <p>Motivating managers to undertake value-destroying projects</p> Signup and view all the answers

    What is the Operating Cycle composed of?

    <p>Inventory period and receivables period</p> Signup and view all the answers

    What is the purpose of calculating EVA?

    <p>To measure the company's economic profit</p> Signup and view all the answers

    What is the result of a company's EVA being higher than its WACC?

    <p>Value creation</p> Signup and view all the answers

    What is the relationship between EVA and Shareholder Value?

    <p>EVA increases as Shareholder Value increases</p> Signup and view all the answers

    What is the primary goal of calculating Working Capital Requirement?

    <p>To optimize Operating Cycle</p> Signup and view all the answers

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