Steps in Calculating EVA (Economic Value Added)
The steps performed in calculating EVA in more detail as follows:
- Calculate the cost of debt and equity costs
- Calculate the capital structure of the balance sheet
- Calculating NOPAT
- Calculate the rate of return (r)
- Calculate the average cost of capital weighted (C)
- Calculating EVA (Economic Value Added)
EVA is similar to the usual profit calculation but with two important differences in the EVA into accounts the cost of all capital and not blocked by a set of GAAP in financial statements.
Net income reported in the income statement considering that most companies just looking at capital costs such as interest-which ignores cost on equity finance.
Financial Accounting does not calculate finance charges on received by shareholders as an opportunity cost that cannot be measured directly. But the reality is not so.
The General Objective of Management Accounting Systems
Management accounting information systems are not bound by a formal criterion that describes the nature of the input, process and output. These criteria are flexible and based on management objectives to be achieved.
The general of management accounting systems:
- Provide the information required in calculating the cost of services, products, and other desired destination management.
- Provides information used in planning, control, evaluation, and continuous improvement.
- Providing information for decision making. Management accounting information can help identify a problem, solve problems, and evaluate performance. Thus, management accounting information is needed and used in all phases of management, including planning, controlling, and decision making.
According to the Statement of Financial Accounting (SFAC) No.2 qualitative characteristics of financial information are as follows:
1. Relevant means that the capacity of information that could encourage a decision if utilized by the user for the purpose of predicting future outcomes based on past and current events. There are three main characteristics, namely:
- Timeliness (timeliness), namely information that is ready to use the users before it loses meaning and the capacity in decision making.
- Predictive value (predictive value), that information can assist users in making predictions about the final outcome of events past, present and future.
- Feedback (feedback value), namely the quality of information that allows the user to confirm the expectations that have occurred in the past.
2. Reliable, means the quality of information that is guaranteed free of errors and irregularities or bias and has been assessed and presented appropriately for their intended purpose. Reliable has three main characteristics, namely:
- Can be checked (verifiability), the consensus in the choice of accounting measurements can be assessed by its ability to ensure that the information presented is based on whether certain methods gave similar results when verified by the same method by an independent party.
- Honesty representation (representation faithfulness), namely the compatibility between accounting numbers and descriptions as well as his sources.
- Neutrality (neutrality), neutral financial information intended for the general needs of users and independent of assumptions about the particular needs and desires of the users of certain specific information.
3. Power of Appeals (Comparability), financial information that can be compared to present the similarities and differences that arise from the basic similarities and differences in corporate and transaction basis and not solely from differences in accounting treatment.
4. Consistency, the uniformity in the determination of accounting policies and procedures that do not change from period to period.
Accounting Management Information Type
Management accounting information can be attributed to three things, namely the object information (product, department, activity), the alternative will be selected, and the authority of managers. Therefore, management accounting information is divided into three types of information:
1. Full Accounting Information
Full accounting information includes information of the past and the future of information. Full accounting information which contains the past information is useful for reporting financial information to top management and outside the company, profitability analysis, providing an answer to the question “how much money has been spent on something”, and determination of selling prices in cost-type contract.
Full accounting information which contains the future of information useful for the preparation of the program, the determination of the normal selling price, transfer pricing, and determining the selling price set by the government.
2. Differential Accounting Information
Differential accounting information is estimated differences in assets, income, and / or costs in the other action alternatives. Differential accounting information has two main elements, namely an information age to come and differ among the alternatives faced by decision makers. Differential accounting information which is only concerned with the cost of so-called differential costs, which is only concerned with revenue-called differential revenue, and is concerned with the assets, is called differential assets.
3. Responsibility Accounting
Accounting information is the information assets, income, and / or costs associated with managers who are responsible for a specific responsibility center. Accounting information is information that is important in the management control process because the information it stresses the relationship between financial information to managers who are responsible for the planning and implementation. Accounting information is thus a basis for analyzing the performance of managers as well as to motivate the managers in carrying out their plans as outlined in their respective budgets.