Measuring and Controling Value Created in Endesa - 604 Words

1. Refer to ENDESA ¡Ã‚ ¦s current business strategy. In what primary economic activity is ENDESA engaged? (HINT: the primary economic activity is not the generation and sale of electricity or related activities). Why is it necessary to understand the strategy and primary economic activity in order to manage ENDESA ¡Ã‚ ¦s financial activities? Managers should ensure that selected performance measurement system fits the unique requirements and business strategy of the firm. In general, primary economic activity of the company and its performance focus should dictate the selection of performance measurement model. ENDESA strategy is  ¡Ã‚ §one of acquiring business units, using its expertise to develop as much value in the unit as possible and then†¦show more content†¦After subtracting all economic costs from operating profits after taxes EVA reveals the true economic surplus available for further investment. Traditional cash flow analysis can easily disregard companies with negative cash flows because main purpose of traditional cash value metric is to control cash generation. In contrast, the main purpose of EVA is to optimize resource allocation. At difference to accounting measures, EVA highlights the gap in performance, and hence, aligns the interests of managers and shareholders. The link between shareholders value and economic profit of the company becomes more transparent. At difference to traditional accounting measures of corporate profit, EVA fully accounts for the company ¡Ã‚ ¦s overall capital costs. It includes both, the direct cost of debt capital and the indirect c ost of equity capital. The cost of capital is the minimum return required to pay shareholder ¡Ã‚ ¦s equity . EVA can therefore determine whether or not the business is creating value but it can also indicate how much value is created at different business levels. In contrast, by employing accounting perspective, in terms of traditional metrics for performance measurement, managers cannot fully consider the required shareholder ¡Ã‚ ¦s return on invested capital. In addition, accounting principles are often easy to manipulate and can vary from one countryShow MoreRelatedCase Study for Management Accounting36912 Words   |  148 PagesPRACTICES Table of Contents Case 1: Case 2: Bal Seal Engineering Robin Cooper Bill’s Custom Planters William Stammerjohan Deborah Seifert Dublin Shirt Company Peter Clarke in assoc. with in assoc. with Paul Juras Wayne Bremser ECN.W William Lawler Endesa Gary M. Cunningham Scott Ericksen Francisco J. Lopez Lubian Antonio Pareja Kincaid Manufacturing Jon Yarusso Ram Ramanan Osram.NA John Shank Lawrence Carr William Lawler Pleasant Run Children’s Home Brooke E. Smith Mark A. McFatridge Susan B. HughesRead MoreCase Study for Management Accounting36918 Words   |  148 PagesPRACTICES Table of Contents Case 1: Case 2: Bal Seal Engineering Robin Cooper Bill’s Custom Planters William Stammerjohan Deborah Seifert Dublin Shirt Company Peter Clarke in assoc. with in assoc. with Paul Juras Wayne Bremser ECN.W William Lawler Endesa Gary M. Cunningham Scott Ericksen Francisco J. Lopez Lubian Antonio Pareja Kincaid Manufacturing Jon Yarusso Ram Ramanan Osram.NA John Shank Lawrence Carr William Lawler Pleasant Run Children’s Home Brooke E. Smith Mark A. McFatridge Susan B. Hughes