Using EVA at Outsource, Inc.

Executive Summary

Economic Value Added (EVA ) is a measure of the actual performance of an enterprise when it comes to financial matters . It is different from the actual accounting profit . This deducts the costs of capital , thus placing more emphasis on effectiveness and operating efficiency , and balance sheet management . It is the measure of the true , actual profit of a certain company or enterprise , where it could be done on a company-wide basis or divided into sub-divisions . EVA is the net operating profit , less the suitable charge for the opportunity cost of

br all investments in the enterprise . It is the true economic profit , an estimate of the necessary minimum rate of return that investors could gain upon risking their money in other securities ADDIN EN .CITE StewartBennett StewartWhat is EVA ?2007February 42004http /www .sternstewart .com /evaabout /whatis .php (Stewart , 2004

OutSource , Inc (OSI ) is an example of a business enterprise which is expanding , gradually improving , and thus promising a good future in the business sector . It is a computer service provider which serves support services to a several business firms in their immediate vicinity . As the economy continuous to flourish , this spells a strong potential for a high amount of earning for OSI . This company handles the tasks outsourced by other companies including personnel placement , payroll human resources , insurance and data processing . For a company like OSI the application of Economic Value Added is a good choice because it eliminates the confusion of multiple goals because it utilizes a single measure of handling finance wherein it links all decision making on the improvement of EVA . It is a system of management that gives the employees a general language , whatever sector they belong to and whatever staff functions they perform . It is a goal-oriented point of view , the value added to shareholder investment

To compute for the EVA of OutSource , Inc . the following equation will be used EBIT (Earnings before interests and taxes 73 ,904

Tax Rate 35

NOPAT (Net operating profits after taxes 48 ,037 .6 After-Tax Cost of Capital 12 .5

Dollar Cost of Capital 21 ,229 .75

EVA 48 ,037 - 21 ,229 .75

EVA 26 ,807 .25

You take into consideration the profit that they make after it was taxed , and then subtract the appropriate charge for the opportunity cost considering all the capital investment in the context of OSI as a firm

Key Issues

There are various concerns that is being tackled in the case of OutSource , Inc . and the application of EVA . The following are the key concept and issues that will be addressed in this case

Healthy economy leads to higher earnings . OSI is classified as an information services firm , which is composed of independent entrepreneurs that give a variety of services clients coming from the government and other corporations . Basing on this , an economy which is continuously gaining strength means a growing market for OSI . This is because of the increase in the number of firms availing their services These firms have no spare...