The Residual Value Models: A Framework for Business Administration
This article investigates the relationship between a firm’s performance and Residual Value Models (RVM) which serve as decision making tools in corporate management. The main measures are the Economic Value Added (EVA®) and Cash Value Added (CVA®), with key components the Residual Income (RI), Free Cash Flow (FCF) and Weighted Average Cost of Capital (WACC). These measures have attracted considerable interest among scientists, practitioners and organizations in recent years. This work focuses on the relations, among Net Income (NI), Residual Income, Cash Flows from Operations activities (CFO), cost of equity capital and debt capital, we also discuss the usage of accounting data from accrual or cash flow basis, the economic adjustments on them, and the compatibility with IFRS4 rules or other countries’ GAAPs5. Generally, the decision making based on Value Based Management (VBM) key metrics shows inconsistencies and limitations in definitions and applications, but at the same time, it is a way for management to have influence on the company’s performance and total market value (TMV) which are strongly related to current and future VBM key metrics’ amounts. The contribution of this paper is that it surveys from a critical perspective, literature about Residual Value Models (RVM) and VBM metrics and proposes a new framework for managing the firm’s value and monitoring performance. f his legislature, which ends in 2010 (1). Polish Prime Minister Donald Tusk said during the Economic forum in Krynica that Poland would adopt euro in 2011 a year before the European football championship organized together by Poland and Ukraine. In November 2008 Polish Government accepted so called road map to introduce euro by 2012. Firstly, Polish zloty should join the ERM 2 system which was planned in the middle of 2009. Secondly, after accomplishment convergence criteria in 2011, Poland is going to fix the permanent exchange rate between polish zloty and euro. Thirdly, introduction of Euro and withdrawal of polish zloty is previewed on 1 January 2012. The prices on polish market are going to be presented in two currencies (polish zloty and Euro) during six month. However, before Poland will join the euro zone , the Polish Constitution has to be amended to give the European Central Bank the right to print and distribute euro as a national currency. In connection with the world financial crises and suddenly devaluation of polish zloty most economist agree that government plan of euro introduction in Poland is too rushed and not realistic and adhesion of zloty into ERM 2 system should be delaying.
References listed on IDEAS
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.:
- Ittner, Christopher D. & Larcker, David F., 2001. "Assessing empirical research in managerial accounting: a value-based management perspective," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 349-410, December.
- Panayiotis Curtis & Jonh Thalassinos, 2005. "Equity fund raising and “creative” accounting practices: Indications from Athens Stock Exchange for the 1999-2000 period," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 127-127.
- Eleftherios Thalassinos & Theodoros Kyriazidis & John Thalassinos, 2006. "The Greek Capital Market: Caught in Between Poor Corporate Governance and Market Inefficiency," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 3-24.
- Timothy J. Sheehan, 1994. "TO EVA-super-TM OR NOT TO EVA: IS THAT THE QUESTION?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 7(2), pages 85-87.
- Stoughton, Neal M. & Zechner, Josef, 2007.
"Optimal capital allocation using RAROC(TM) and EVA(R),"
Journal of Financial Intermediation,
Elsevier, vol. 16(3), pages 312-342, July.
- Stoughton, Neal & Zechner, Josef, 2004. "Optimal Capital Allocation Using RAROC(tm) and EVA," CEPR Discussion Papers 4169, C.E.P.R. Discussion Papers.
- Michael C. Jensen & William H. Meckling, 2009. "Specific Knowledge and Divisional Performance Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(2), pages 49-57.
- Michael C. Jensen & William H. Meckling, 1999. "Specific Knowledge And Divisional Performance Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 8-17.
- Biddle, Gary C. & Bowen, Robert M. & Wallace, James S., 1997. "Does EVA(R) beat earnings? Evidence on associations with stock returns and firm values," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 301-336, December.
- Bhimani, Alnoor & Soonawalla, Kazbi, 2005. "From conformance to performance: The corporate responsibilities continuum," Journal of Accounting and Public Policy, Elsevier, vol. 24(3), pages 165-174.
- Jean-Pierre Ponssard & Nicolas Mottis, 2001. "Value Based Management and the corporate profit center," Post-Print hal-00365724, HAL.
- Bennett Stewart, 2009. "EVA Momentum: The One Ratio That Tells the Whole Story," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(2), pages 74-86.
- Peasnell, Kenneth V., 1996. "Using accounting data to measure the economic performance of firms," Journal of Accounting and Public Policy, Elsevier, vol. 15(4), pages 291-303. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ers:journl:v:xiii:y:2010:i:1:p:83-102. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marios Agiomavritis)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.