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EVA Analysis - Research Paper Example
Author : baileyfavian
Finance & Accounting
Pages 12 (3012 words)
IBM and Economic Value Added (EVA) Name: University: Introduction IBM is one of the most successful firms in the world. IBM (International Business Machine) was among the pioneers in the information technology sector and became very famous for its desktop computers as well as server computers…
However, as IBM has faced competition in the computer hardware subsectror of the IT sector, it has diversified into other areas and become a big product in these areas. IBM has become more active today in the software sector as well as the cloud computing sector. In fact the area where the firm is most successful is the software sub-sector. IBM now has four main divisions which include Financing, Hardware, Services, and Software (Lines & Ambler, 2012). Each of the four departments in IBM has different profitability and this means that if the investors were to value each individually rather than valuing the firm one whole, they would have different a value in total. Economic Value Added (EVA) is the method of determining the value of a firm through calculating its value produced after return of capital invested and the cost of operation (Grant, 2003). Because of this when investors value each individual division as opposed to averaging the profits of each division and calculating the value firm of collectively, they would at a different value of the firm. In this regard, if investors were to demarcate IBM and each division valued individually, each of the division would have a different value and if these values were to be added together, they would have a higher value than the value calculated in a combination. ...
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