02]: EVA of Auto ancillary industry is not influenced by CVA, RONA, FCF and NOPAT
If the changes in NOPAT
exceed this benchmark, then the initiative creates economic value for the manufacturer.
0% Tax on operating income 4,117 NOPAT
8,358 Depreciation 3,116 Change in working capital 346 Capital expenditures 5,799 Cash flow from operations 5,329 Present value 5,191 Terminal growth rate 6.
Simplified processes and less material and labor lowers direct costs, supporting higher margins and more volumes and therefore more NOPAT
and a higher return on capital.
Value in this context means the enterprise value warranted by the current performance level, estimated as the higher of capital or capitalized NOPAT
= EBIT * (1-tax rate) 75 105 2002 2003 ($ Thousands) ($ Thousands) Golf Revenue 995 1,191 Food and Beverage Revenue 110 119 Total Operating Revenue 1,105 1,310 Total Operating Expenses 862 935 Gross Margin 243 375 Depreciation 155 175 EBIT 88 200 Tax rate 0.
Another survey showed that EVA explains 31% of market value, while NOPAT
(Net Operating Profit After Taxes) reflects only 17% of changes.
In addition, adjustments are made to the accounting numbers in the computation of NOPAT
The formula for EVA is EVA = NOPAT
- (weighted average cost of capital x capital).
Specifically, when Pillsbury's Net Operating Profits after Taxes (NOPAT
) equals or exceeds its projected NOPAT
for a given year, non-union hourly employees and salaried employees who are not covered by another incentive plan receive a share (an amount equal to a percentage of their eligible earnings) of the year's profits.
To be conservative, Scott recommended valuing Riverside at 130% of golf revenue plus 65% of food and beverage revenue plus $10,000 per acre for real estate if using the multiple of revenue approach or 8 times NOPAT
plus $10,000 per acre for real estate if using the multiple of income approach.
GATX CORPORATION 1993 Net Income and NOPAT
($ in millions)