02.23
M AGUS SUDRAJAT
Oleh :
M. AGUS SUDRAJAT
Abstract
Excellent performance is one of important reasons why an investor is interested in investing his money in a business. It is also a key factor for increasing, shareholder’s wealth. Many approach to business performance assessment have been introduced. One of the most frequently used conventional assessment approaches is financial ratio. This financial ratio analysis can easily be carried out as long as historical data, i.e. firm’s financial reports, is adequately available. Nevertheless, there are some flaws on this approach that confine it from assessing business performance accurately.
An alternative performance assessment paradigm have been introduced and developed since 1980s, which has been expected to be able to overcome the aforementioned flaws on conventional approaches. This alternative concept measures financial performance based on Economic Value Added (EVA), which has commonly been developed theoretically and empirically. This concept states that a business will gain added if if its profit can cover its cost of capital.
A value added-based approach that has not regularly been studied empirically is that using Financial Value Added (FVA). This paper tries to explain in detail how to measure business performance and value added based on FVA related to financial management decisions. As comparison, the assessment approach using financial ratio and EVA will be described prior to discussion on FVA-based approach. Finally, we expect that output of this study can provide appropriate base for further relevant empirical studies.
Key words : Financial Ratio, Economic Value Added, Financial Value Added
Posted in: Jurnal Indonesia
