Measuring Performance. Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in S millions)
Net sales 881
Cost of goods sold 741
Depreciation 31
Earnings before interest and taxes (EBIT) 109
Interest expense 12
Income before tax 97
Taxes 34
Net income 63
BALANCE SHEET (Figures in $ millions)
End of Year Start of Year
Assets
Current assets 369 312
Long-term assets 258 222
Total assets 627 534
Liabilities and shareholders' equity
Current liabilities 194 157
Long-term debt 108 121
Shareholders' equity325 256
Total liabilities and shareholders' equity 627 534
The company’s cost of capital is 8.5%.
a. Calculate Watervan’s economic value added (EVA).
b. What is the company’s return on capital? (Use start-of-year rather than average capital.)
c. What is its return on equity? (Use start-of-year rather than average equity.)
d. Is the company creating value for its shareholders?