Jonathan Somba

29114307

EVA ANALYSIS OF

In short, EVA is calculated in the following formula:

NOPAT ( Net Operating Profit After Taxes )(Capital x Cost of Capital)
While cost of capital is consist of:

Cost of Capital=Cost of Equity x Proportion Equity Capital+Cost of Debt x Proportion of debt capital x (1t

EVA is a performance metric that calculates the creation of shareholder value, but it distinguishes
itself from traditional financial performance metrics such as net profit and earnings per
share (EPS). EVA is the calculation of what profits remain after the costs of a company's capital both debt and equity - are deducted from operating profit. The idea is simple but rigorous: true
profit should account for the cost of capital.

Jonathan Somba
29114307

The positive number tells us that Krakatau Steel more than covered its cost of capital. A negative
number indicates that the project did not make enough profit to cover the cost of doing business.
From the calculation, the PV EVA are both negative in 2013 and 2014 which means there wasnt
enough profit to cover the cost of doing business. Deriving from the excel calculation, Krakatau
Steel Income was already negative. Moreover, the Capital charges were so large that may lead to
more negative in the EVA. Krakatau Steel need to increase the income and the best thing to do is
to reduce the cost and reduce capital. Efficiency and cost reduction will gain more EVA in the
future.