Cash value added

The cash value added ( CVA ) or differential gross cash flow ( UBCF ) is a residual profit variable based on the cash flow return on investment (CFROI). A variation of the CVA is the economic value added of Stern Stewart & Co .

calculation

The CVA can be calculated in two different ways. (1) is the more general form, while (2) is a modification for the case that the CFROI is calculated according to variant II.

(1) CVA = (CFROI - wacc) BIB ${\displaystyle \cdot }$

or

(2) CVA = BCF - ÖA - (wacc BIB) ${\displaystyle \cdot }$

BCF - gross cash flow

BIB - gross investment base

CFROI - Cash Flow Return on Investment

wacc - weighted average cost of capital

ÖA - economic depreciation

• The gross cash flow (BCF) is supposed to show the profitability of the company, but less so the financial strength . The calculation is retrograde, i.e. H. the cash flow is derived from the figures in the balance sheet , since the true cash flows are generally not available. The adjustment of the profit takes place according to the scheme of the German Association for Financial Analysis / Schmalenbach Society (DVFA / SG).

• The gross investment base (BIB) is the capital invested in a company up to a key date, i.e. H. Non-interest-bearing debt is not part of the size. The BIB consists of scheduled depreciable assets and non-scheduled depreciable assets. The book values ​​are used as the basis for non-depreciable assets .
  • The non-interest-bearing borrowed capital falls out of the BIB. The calculation on the basis of the balance sheet data is difficult because there is no breakdown. For the sake of simplicity, it is assumed that liabilities to suppliers, down payments from customers and tax liabilities are non-interest-bearing.

• The economic depreciation (ÖA) is the amount necessary to make future replacement investments. The amount is, ceteris paribus , smaller than the commercial or tax depreciation, since the amount is also subject to interest.
  • The OA is calculated using: OA = Depreciable Assets ${\displaystyle ({\frac {wacc*(1+wacc)^{n}}{(1+wacc)^{n}-1}})\cdot }$

rating

As soon as the CFROI is greater than the total cost of capital (wacc), an increase in value is achieved (see formula (1)). The cash flow basis largely avoids the influences of balance sheet policy . When using CFROI II as the basis, the discounting of the cash flows corresponds to the discounting of the excess profit, which means that the Preinreich-Lücke theorem is fulfilled. Using the CFROI as a basis naturally brings with it all the criticisms of this concept. Manipulation is possible when determining the cost of capital using the WACC approach . The CVA does not take into account intangible assets .

criticism

It is stated that the desired correlation between CVA and shareholder value is only extremely low and the concept is therefore unsuitable for determining value creation.

literature

1. ↑ Bayer Investor Relations: Shares - Glossary. In: investor.bayer.de. Retrieved November 8, 2013 . 
2. ^ Pablo Fernandez: EVA, economic profit and cash value added do not measure shareholder value creation . In: Journal of Applied Finance . tape 9 , no. 3 , 2003, p. 74-94 .

• Daniel Stelter: “Value-oriented incentive systems” in Wolfgang Bühler, Theo Siegert (ed.): Corporate management and incentive systems: Congress documentation / 52nd German Business Economists Day 1998, Stuttgart: Schäffer-Poeschel Verlag, pp. 207–241.
• Martin Hebertinger: "Measures of Appreciation - A Critical Analysis", Frankfurt am Main et al. 2002, European Science Publishing House, ISBN 3-631-38594-3
• Plaschke, Frank J .: "Value-oriented management incentive systems based on internal value indicators", from p. 161, ISBN 3-8244-7760-2