Handout 8 - Lehrstuhl für Controlling

Technische Universität München
Value-Based Management
Handout Problem
Set 8:
Case Study
”Vyaderm Pharmaceuticals“
Lehrstuhl für Controlling
Prof. Dr. Gunther Friedl
Email for questions and comments: peter.schaefer@tum.de
Technische Universität München
Question 16: Implementing EVA
Q16.1: Why has it been decided to implement EVA?
Handout Problem Set 8: Case Study
2
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
What is an EVA center? Why does the company reduce the number of EVA centers but not down to a single
EVA center?
Handout Problem Set 8: Case Study
3
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
What is the purpose of the bonus bank?
Handout Problem Set 8: Case Study
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Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Discuss the problems occurring in the first year of the implementation of the bonus system.
Handout Problem Set 8: Case Study
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Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Discuss the problems occurring in the first year of the implementation of the bonus system.
Handout Problem Set 8: Case Study
6
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
R&D Adjustment to NOPAT2000 and NOPAT2001
($000s),
rounded
1995
1996
1997
1998
1999
2000
2001
R&D
expense
10,673
12,487
14,610
17,094
20,000
39,000
27,378
Adj. to NOPAT2000:
Amortization
1995
... 1996
... 1997
... 1998
Adj. to NOPAT2001:
... 1999
... 2000
… 2001
Handout Problem Set 8: Case Study
7
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
R&D Adjustment to Invested Capital2001:
R&D Adjustment to Invested Capital2000:
R&D Adjustment to Invested Capital1999:
Handout Problem Set 8: Case Study
8
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
Consumer Advertising Adjustment to NOPAT2000, 2001 and Invested Capital2001, 2000, 1999:
($000s),
rounded
Advertising
expense
1996
1997
1998
1999
2000
2001
34
38
41
45
50
55
Adj. to NOPAT2000:
Adj. to NOPAT2001:
Amortization
1996
... 1997
Adj. to Invested Capital2001:
... 1998
... 1999
Adj. to Invested Capital2000:
... 2000
Adj. to Invested Capital1999:
… 2001
Handout Problem Set 8: Case Study
9
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
Goodwill Adjustment to NOPAT2000, 2001 and Invested Capital2001, 2000, 1999:
Adj. to NOPAT2000:
Adj. to Invested Capital2001:
Adj. to Invested Capital2000:
Adj. to NOPAT2001:
Adj. to Invested Capital1999:
Handout Problem Set 8: Case Study
10
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
Summary of Adjustments to Invested Capital2001, 2000, 1999 and Averaging:
(in $000s)
1999
2000
2001
Net operating assets (NOA)
R&D adjustment
Consumer advertising adjustment
Goodwill adjustment
Invested Capitaladj.
=> Average adjusted Invested Capital2001:
=> Average adjusted Invested Capital2000:
Handout Problem Set 8: Case Study
11
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.1: Calculate 2000 EVA and expected 2001 EVA for the North American Dermatology division.
Summary of Adjustments to NOPAT2000,2001 and EVA Calculation:
(in $000s)
2000
2001
Net (Operating) Income before Tax
Taxes
NOPATunadj.
R&D adjustment
Consumer advertising adjustment
Goodwill adjustment
NOPATadj.
Capital Charges
EVA
Handout Problem Set 8: Case Study
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Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.2: Calculate 2000 EVA bonus payout for a manager earning $ 200,000, assuming that the manager’s bonus is
based 100 % on the division’s EVA.
2000
2001
Target bonus
Actual EVA
Improvement
Improvement Goal
EVA Target
EVA
Performance
Starting bonus bank
balance
Calculated bonus
New bonus bank
balance
Bonus payout
Ending bonus bank
balance
Handout Problem Set 8: Case Study
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Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.3: Recommendation about bonus system
Handout Problem Set 8: Case Study
14
Prof. Dr. Gunther Friedl – SS 2013
Technische Universität München
Question 17: Calculating a business unit’s EVA and the divisional manager’s bonus
Q17.3: Recommendation about bonus system
Handout Problem Set 8: Case Study
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Prof. Dr. Gunther Friedl – SS 2013