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On decomposing net final values: EVA, SVA, and shadow project

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Author Info
Magni, Carlo Alberto

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Abstract

A residual-income model, named Systemic Value Added (SVA), is proposed for decision-making purposes, based on a systemic approach introduced in Magni (2000, 2003, 2004). The model translates the notion of residual income (excess profit) giving formal expression to a counterfactual alternative available to the decision maker. Relations with other residual income models are studied, among which Stewart's Economic Value Added. The index here introduced differs from EVA in that it rests on a different interpretation of the notion of excess profit and is formally connected with the EVA model by means of a shadow project. The SVA is formally and conceptually threefold, in that it is economic, financial, accounting-flavoured. Some results are offered, providing su±cient and necessary conditions for decomposing Net Final Values. Relations between a project's SVA and its shadow project's EVA are shown, all results of Pressacco and Stucchi (1997) are proved by making use of the systemic approach and the shadow counterparts of those results are also shown.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12357.

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Date of creation: 2005
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Handle: RePEc:pra:mprapa:12357

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Related research
Keywords: Excess profit; residual icome; net final value; decomposition; EVA; SVA; systemic; shadow project;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
C00 - Mathematical and Quantitative Methods - - General - - - General

References listed on IDEAS
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  1. Carlo Alberto Magni, 2003. "Decomposition of Net Final Values: Systemic Value Added and Residual Income," Bulletin of Economic Research, Blackwell Publishing, vol. 55(2), pages 149-176, 04. [Downloadable!] (restricted)
  2. Magni, Carlo Alberto, 2004. "Modelling excess profit," Economic Modelling, Elsevier, vol. 21(3), pages 595-617, May. [Downloadable!] (restricted)
    Other versions:
  3. Ezra Solomon, 1956. "The Arithmetic of Capital-Budgeting Decisions," Journal of Business, University of Chicago Press, vol. 29, pages 124. [Downloadable!]
  4. Roberto Ghiselli Ricci & Carlo Alberto Magni, 2006. "Economic value added and systemic value added: symmetry, additive coherence and differences in performance," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(3), pages 151-154, May. [Downloadable!] (restricted)
    Other versions:
  5. Magni, Carlo Alberto, 2000. "Decomposition of a Certain Cash Flow Stream: Differential Systemic Value and Net Final Value," MPRA Paper 7308, University Library of Munich, Germany. [Downloadable!]
  6. Gronchi, Sandro, 1986. "On Investment Criteria Based on the Internal Rate of Return," Oxford Economic Papers, Oxford University Press, vol. 38(1), pages 174-80, March. [Downloadable!] (restricted)
  7. Carlo Alberto, Magni, 2008. "Splitting Up Value: A Critical Review of Residual Income Theories," MPRA Paper 10506, University Library of Munich, Germany. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carlo Alberto, Magni, 2008. "Splitting Up Value: A Critical Review of Residual Income Theories," MPRA Paper 10506, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Ghiselli Ricci, Roberto & Magni, Carlo Alberto, 2009. "Axiomatization of residual income and generation of financial securities," MPRA Paper 14438, University Library of Munich, Germany. [Downloadable!]
  3. Roberto Ghiselli Ricci & Carlo Alberto Magni, 2006. "Economic value added and systemic value added: symmetry, additive coherence and differences in performance," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(3), pages 151-154, May. [Downloadable!] (restricted)
    Other versions:
  4. magni, Carlo Alberto, 2006. "Zelig and the Art of Measuring Excess Profit," MPRA Paper 5663, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Magni, Carlo Alberto, 2007. "In search of the "lost capital". A theory for valuation, investment decisions, performance measurement," MPRA Paper 5719, University Library of Munich, Germany. [Downloadable!]
  6. Carlo Alberto Magni, 2007. "A Sum&Discount Method for Appraising Firms: An Illustrative Example," Department of Economics 0572, University of Modena and Reggio E., Faculty of Economics "Marco Biagi". [Downloadable!]
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  7. Magni, Carlo Alberto, 2005. "Economic profit, NPV, and CAPM: Biases and violations of Modigliani and Miller's Proposition I," MPRA Paper 6359, University Library of Munich, Germany, revised 22 Jun 2008. [Downloadable!]
  8. Magni, Carlo Alberto, 2003. "Opportunity cost, excess profit and counterfactual conditionals," MPRA Paper 5695, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  9. Magni, Carlo Alberto, 2007. "Residual income and value creation: An investigation into the lost-capital paradigm," MPRA Paper 7335, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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