Page 85 - BA1 Integrated Workbook STUDENT 2018

Performance measurement

Divisional performance

When measuring the performance of a division or other strategic business unit, there
are three main models to consider.

7.1 EVA®

EVA involves the calculation of a divisional profit figure, less a charge
for capital employed in the period. Adjustments are made for a variety
of issues (for example goodwill and R&D) to calculate the actual economic
return made by the division in the period.

7.2 SVA

SVA is a variation on the theme of EVA. It looks at ways that a company
can maximise the returns from its projects/strategies to ensure that it
provides sufficient returns for investors.

This can be done by using 7 value drivers (which can be remembered by
the acronym SLOWCAT).

 Sales growth rate.

 Life of the project.

 Operating profit margin.

 Working capital.

 Cost of capital.

 Asset investment.

 Taxation.

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