Abstract
The paper is oriented to the area of management and decision making of company owners and managers. The absolute synthetic performance criterion Economic Value Added represents the criterion of the residual income and managerially measured profit. Concrete questions must be solved with the ascertainment of this financial criterion as for example how correctly to measure capital costs, how to determine the right amount of the investment capital and return on investment capital, eventually return on assets, or how to work with the time horizon in the measurement of Economic Value Added, because this criterion should be presented also as the important tool of the transformation of strategic targets on tactical time periods and to lower structural levels of investment and profitability responsibility centers. Economic Value Added should serve as one of criteria of investment decision and as criterion of the appraisal of managerial decision making, because just managers are responsible for the economical process and results of the main operating activities.
Highlights
It is evident today that the necessity of the value management is typical under present conditions of the globalization and competition
The construction of well-known criterion Economic Value Added shows that operating profit after tax must be greater than investment capital multiplied by capital costs which are created by interests paid to investors and incomes required by shareholders
The absolute criterion Economic Value Added can be expressed by the relation EVA = OP – WACC ⋅ (A – StL), where OP = operating profit after tax, WACC = weighted average capital costs, A = average amount of assets needed for realization of main operating activities and StL = average amounts of short-term liabilities rising in the connection with the main entrepreneurial activity of the accounting entity
Summary
It is evident today that the necessity of the value management is typical under present conditions of the globalization and competition. Such criteria as for example Economic Value Added, Earnings Before Interest and Tax, Market Value Added, Share Value Added, Cash flow return on investment capital and others are by the starting point of the strategic management and decision making owners and top managers of the Czech company Such information methods, for example Balanced Scorecard, long-term analyses of the customer profitability analysis and sensitivity analysis (Crawford, 2008) and value instruments of output oriented management as the target costing and life cycle costing (Knapová, 2009), are used to the promotion of strategic targets so as to facilitate to the elimination of the uncertainty in the business and to the ensuring of long-term perspectives on the performance development. The article objective is to present the chosen synthetic criterion Economic Value Added for owners and managers on their positions, which belongs among prepared performance criteria primarily in the field of the long-term management and secondarily to emphasize its importance and using for management of main operating activities of Czech accounting entities
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