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

  • Magni, Carlo Alberto

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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  1. 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.
  2. Carlo Alberto Magni, 2003. "Decomposition of Net Final Values: Systemic Value Added and Residual Income," Bulletin of Economic Research, Wiley Blackwell, vol. 55(2), pages 149-176, 04.
  3. Carlo Alberto, Magni, 2008. "Splitting Up Value: A Critical Review of Residual Income Theories," MPRA Paper 10506, University Library of Munich, Germany.
  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.
  5. Daniel Teichroew & Alexander A. Robichek & Michael Montalbano, 1965. "An Analysis of Criteria for Investment and Financing Decisions Under Certainty," Management Science, INFORMS, vol. 12(3), pages 151-179, November.
  6. Daniel Teichroew & Alexander A. Robichek & Michael Montalbano, 1965. "Mathematical Analysis of Rates of Return Under Certainty," Management Science, INFORMS, vol. 11(3), pages 395-403, January.
  7. Ezra Solomon, 1956. "The Arithmetic of Capital-Budgeting Decisions," The Journal of Business, University of Chicago Press, vol. 29, pages 124.
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