- The document presents information on the calculation of return on investment (ROI) and economic value added (EVA) for multiple divisions of different companies. - It includes profit, fixed asset, and current asset values to calculate ROI and EVA under various cost of capital assumptions provided by company controllers. - The documents ask to tabulate the ROI and EVA values for budgeted and actual performance for comparative analysis and evaluation of divisional performance based on the metrics.

1. EVA I
(2001 Q. 12)
Best & Company comprises five divisions A, B, C, D & E and at present performance metric is return on
assets. However, the controller has suggested management to switch over to EVA as the criterion rather
than return on assets. From the information given below compute both ROI & EVA for each division and
tabulate the same.
Divisions Profit Fixed Assets Current Assets
A 150 400 80
B 110 200 800
C 50 300 500
D 55 200 400
E 90 100 400
Controller suggested using corporate finance rate of 5% for current assets and 10% for fixed assets.
(2006 Q. 12)
Ananaya & Company comprises of five divisions A, B, C, D & E and the present performance metric is
return on assets. However, the controller has suggested management to switch over to economic value
added (EVA) as the criterion rather than return on assets. Compute and tabulate both return on assets
and EVA on the basis of following information (Rs. lacs) and comment on divisional performance.
Divisions Profit Fixed Assets Current Assets
A 300 800 160
B 220 400 1600
C 100 600 1000
D 110 400 800
E 180 200 800
Controller feels corporate finance rates on current assets and fixed assets should be 5% and 10%
respectively.
EVA II
(2002 Q. 12)
Shweta Enterprises used Economic Value Added (EVA) method for measuring divisional profit
performance for its 3 divisions – J, K & L. Company charges to divisions for current assets is 5%
while for fixed assets it is 10% in EVA computation. Information is given below (in Rs. Crs.) on
their performance.
Particulars Division J Division K Division L
Budgeted Actual Budgeted Actual Budgeted Actual
Profit 90 80 55 60 50 50
Current Assets 100 90 200 190 300 350
Fixed Assets 400 400 400 450 500 550
On the basis of above information given:
a) What is the budgeted & actual Return On Assets for each of the 3 divisions? (Tabulate)
b) What are the budgeted & actual Economic Value Added (EVA) figures in Rs. Crs. For each
of the divisions. (Tabulate)
c) To what extent actual EVA is below or above the budget for each of the three divisions?

2. (2008 Q. 11)
Shandilya Ltd. has adopted EVA technique for appraisal of performance of its three divisions A, B
& C. Company charges 6% for Current Assets and 8% for Fixed Assets, while computing EVA
relevant data are given below: (Rs. In crores)
Particulars Division A Division B Division C
Budgeted Actual Budgeted Actual Budgeted Actual
Profit 360 320 220 240 200 200
Current Assets 400 360 800 760 1200 1400
Fixed Assets 1600 1600 1600 1800 2000 2200
On the basis of data given above:
a) Tabulate budgeted and actual Return on Assets for each of the divisions.
b) Tabulate budgeted and actual Economic Value Added for each of the divisions.
c) Comment upon both the method based on the results.
EVA Case Study (2011 Q.13)
4) A company has two divisions, Division A & Division B. The financial details of both the divisions
for two years are given below.
Revenue Statement Details
Particulars Division A Division B
2010 2011 2010 2011
Sales 500 400 600 800
Variable cost 300 240 360 480
Contribution 200 160 240 320
Fixed cost 50 40 80 120
PBIT 150 120 160 200
Interest 30 11 30 40
PBT 120 109 130 160
Tax @ 40% 48 44 52 64
PAT 72 65 78 96
Balance Sheet Details
Particulars Division A Division B
2010 2011 2010 2011
Fixed Assets 400 350 400 500
Net Current Assets 200 150 200 300
Total Assets 600 500 600 800
Management evaluates the performance of the Divisional Manager on the basis of Return on Total
Assets. Managerial compensation is linked to ROTA. Based on this criterion the Divisional Manager
A was given higher incentive compensation as he has improved the ROTA of his Division. Manager
of Division B felt it was unfair to judge him on this criterion. He has identified a new investment
opportunity and improved the sales. He felt he should be judged on the basis Economic Value
Added which directly contributes to the wealth of the shareholders. His division has grown by 25%
on sales and size of Assets. Cost of Equity is 10%. Economic Value Added can be calculated as
[PAT – (Cost of Equity in % × Equity share capital)].
Calculate ROTA & EVA for both divisions for Year 2010 & 2011. Discuss the views raised by
Manager of Division B. Does judging Divisional Managers on ROI could lead to dysfunctional
behavior on part? (10)