KPMG INVITED JOEL STERN, WORLD-CLASS ECONOMIST AND CREATOR AND DEVELOPER OF THE CONCEPT OF ECONOMIC VALUE ADDED (EVA)
Joel Stern talked about the company’s economic model and the principles of Economic Value Added, and also explained why the value paradigm is so relevant for Russian companies and described value-based management methods.
MOSCOW, 4 June 2010, - KPMG, international network of firms providing audit, tax and advisory services, arranged a conference dedicated to Economic Value Added, Value Based Principles and methodologies. The main speaker was Joel Stern, whose company is the creator and developer of the concept of “Economic Value Added” as an indicator of company performance and value-based management.
Stern is best known for developing the concept of Economic Value Added (EVA) with his partner Bennett Stewart. EVA is a simple concept that has become a hot topic in corporations around the world. The concept is simply that a firm must generate free cash flows that result in a return exceeding their required rate of return. So why is EVA so popular?
Economic Value Added is a measure of economic profit. It is calculated as the difference between the Net Operating Profit After Tax and the opportunity cost of invested Capital. This opportunity cost is determined by the weighted average cost of Debt and Equity Capital ("WACC") and the amount of Capital employed.
Peter Drucker writes, “There is no profit unless you earn the cost of capital. Alfred Marshall said that in 1896, Peter Drucker said that in 1954 and in 1973, and now EVA has systematised this idea, thank God.” (Drucker, 1998.).
Joel Stern stated: “We have worked with well over 400 companies globally on assignments focused on driving shareholder value, among them Coca Cola, Goldman Sachs, Credit Suisse and many others. What separates EVA from other performance metrics such as EPS, EBITDA, and ROIC is that it measures all of the costs of running a business-operating and financing. This makes EVA the soundest performance metric, and the one most closely aligned with the creation of shareholder value.”
Andrew Cranston, Senior Partner, KPMG in Russia and the CIS stated: “Value management is a fairly new concept for most Russian companies. We are pleased to have an opportunity to cooperate with one of the most forward-thinking international economists.”
Stern gave representatives of the Russian businesses the answer to this question during his discussion. Stern contends that the strength of EVA is that it is contemporaneous. In other words, EVA can be measured on a year by year or even month by month basis, so employee incentives can be linked to EVA. By linking incentives to measures which take into account the shareholders' required rate of return, EVA aligns employee and management priorities. Much of Stern's talk actually focused on the impact of these incentives. Stern also stated that. "EVA brings together strategy, finance, economics and human resources".
Companies creating positive EVA would be recognized in the markets and their share prices would rise accordingly. This concept Stern calls Market Value Added (MVA) which is the present value of expected future EVAs.
The Conference Program was structured so as to provide delegates with the opportunity to become acquainted with the underlying principles and concepts of value-based management and also to take part in the discussion on the best methods for applying them on the Russian market.
About KPMG in Russia and CIS
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 146 countries with 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG has been operating in Russia for twenty years. For the last years KPMG in Russia and the CIS has been one of the fastest growing practices in KPMG worldwide.
In the CIS, KPMG now has offices in Moscow, St. Petersburg, Yekaterinburg, Nizhny Novgorod, Novosibirsk, Rostov-on-Don, Almaty, Astana, Bishkek, Kiev, Donetsk, Yerevan and Tbilisi, employing together approximately 3,000 people.
FOR FURTHER INFORMATION PLEASE CONTACT:
Irina Pashinkina, Head of PR, KPMG in Russia and the CIS
Tel.: +7 (495) 937 44 77 (ext 15355)
Mob.: +7 (916) 396 25 33