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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?

4.74 (C) Signup and view all the answers

What is the formula for calculating EVA?

EVA = (RONA - WACC) · invested capital (C) Signup and view all the answers

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

To measure the value created by a company (D) Signup and view all the answers

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

0.49 (B) Signup and view all the answers

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

1.04 (C) Signup and view all the answers

What is the operating margin for Siemens in 2022?

0.0613 (D) Signup and view all the answers

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

To compare the performance of the firm with the industry average (A) Signup and view all the answers

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

Ratios are not comparable between firms (C) Signup and view all the answers

What is the primary goal of Value-Based Management?

Increase Shareholder Value (C) Signup and view all the answers

What is the formula to calculate EVA?

NOPAT - Capital Charges (A) Signup and view all the answers

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

The company's net investment in the operating cycle (C) Signup and view all the answers

What is the purpose of the EVA balance sheet?

To distinguish net assets from invested capital (A) Signup and view all the answers

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

Motivating managers to undertake value-destroying projects (D) Signup and view all the answers

What is the Operating Cycle composed of?

Inventory period and receivables period (D) Signup and view all the answers

What is the purpose of calculating EVA?

To measure the company's economic profit (A) Signup and view all the answers

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

Value creation (D) Signup and view all the answers

What is the relationship between EVA and Shareholder Value?

EVA increases as Shareholder Value increases (C) Signup and view all the answers

What is the primary goal of calculating Working Capital Requirement?

To optimize Operating Cycle (B) Signup and view all the answers