Cara menghitung ROI dan EVA yang bener

Summary

This video delves into performance evaluation techniques for management using two key tools: ROI (Return on Investment) and EVA (Economic Value Added). It explains the fundamentals of both concepts, their calculation methods, and their pros and cons. The presenter discusses how ROI focuses on short-term profit and its limitations, while EVA evaluates long-term value creation. Additionally, the video touches on the impact of financial decisions on ROI and EVA, offering practical examples for better understanding. Ultimately, it emphasizes the importance of choosing the right tool for effective management assessment.

Takeaways

• 😀 The importance of decentralizing decision-making in a growing business to avoid overwhelming the founder or manager.
• 😀 To evaluate the performance of management, ROI (Return on Investment) and EVA (Economic Value Added) are two useful tools.
• 😀 ROI is used to measure the income generated from invested assets, but it's important to choose the right type of income (e.g., operating income vs net income) to avoid skewed results.
• 😀 It is recommended to use operating assets related to operational activities for calculating ROI, excluding non-operational assets like investments in other companies.
• 😀 There is a debate about whether to include depreciation in the calculation of ROI, as it can affect the asset's book value over time.
• 😀 Using the average of operating assets over a period (e.g., a year) is more accurate for calculating ROI than using a single date’s value to avoid distortions from window dressing.
• 😀 ROI can be broken down into two components: profit margin (NOI / sales) and asset turnover (sales / operating assets), both of which can be adjusted to improve ROI.
• 😀 ROI, while widely used, has limitations such as focusing on short-term profits and potentially encouraging decisions that may harm long-term value creation.
• 😀 ROI may not be fair when applied to evaluate individual divisions or employees, especially if they do not control all related costs.
• 😀 EVA is another tool for performance evaluation, focusing on the value added to the company, considering the opportunity cost and return expectations for both shareholders and debt holders.
• 😀 While ROI measures profitability, EVA considers whether the company's management has generated value beyond the expected cost of capital, offering a more comprehensive view of performance.

Q & A

What is the main topic discussed in the video?

The video primarily discusses performance evaluation techniques for management, focusing on the use of ROI (Return on Investment) and EVA (Economic Value Added) as tools to assess managerial effectiveness.

Why is it important for businesses to decentralize decision-making?

As businesses grow, it becomes difficult for one person to make all decisions. Decentralizing decision-making allows for better management by empowering others to make decisions, ensuring the business runs smoothly without overloading a single individual.

What does ROI measure?

ROI measures how effectively income is generated from the assets invested in a business. It is calculated by comparing income with the assets used to generate that income.

Which income figure is most appropriate to use in calculating ROI?

The most appropriate income figure to use is Operating Income, or EBIT (Earnings Before Interest and Taxes), rather than Net Income. This is because EBIT reflects the company's operational performance before the distribution of interest and taxes.

What types of assets should be included in the calculation of ROI?

Only assets directly related to the operational activities of the business should be included in the ROI calculation. This includes assets such as cash, receivables, inventory, and operational equipment, while excluding non-operational assets like investments in other companies.

Why is depreciation a point of debate when calculating ROI?

Depreciation is debated because it affects the book value of operating assets, potentially inflating the ROI over time. Some companies prefer to calculate ROI using the acquisition cost of assets before depreciation, while others use the book value to maintain consistency with accounting practices.

How does using average operating assets improve ROI calculations?

Using the average operating assets over a period, rather than a snapshot from a single point in time, provides a more accurate and representative calculation. This helps mitigate the impact of practices like 'window dressing' in financial reporting and aligns the operating assets with the income generated during the period.

What are some limitations of using ROI to assess managerial performance?

ROI has several limitations, including a focus on short-term profits, which may incentivize management to prioritize immediate gains over long-term value. Additionally, it may not account for costs outside a manager's control, and certain profitable investments might be overlooked due to their potential negative impact on short-term ROI.

What is EVA, and how does it differ from ROI?

EVA (Economic Value Added) is a metric that evaluates whether a company is generating value beyond its required return on capital. Unlike ROI, which measures profit relative to assets, EVA considers both the operational profit and the cost of capital, providing a more comprehensive view of value creation.

How is the minimum required return (WACC) used in the EVA calculation?

The minimum required return, or WACC (Weighted Average Cost of Capital), is used in the EVA calculation to account for the opportunity cost of capital. It represents the expected return that investors and debt holders require for investing in the business, ensuring that any profit generated exceeds this threshold to create value.