经营者业绩外文翻译.docx
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经营者业绩外文翻译.docx
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经营者业绩外文翻译
本科毕业论文(设计)
外文翻译
原文:
ManagerialPerformance
Oneofthemajorproblemsthelimitedcompaniesfaceistheconflictofinterestbetweenmanagersandowners-generallyknownas‘theagencyproblem’.Itisveryessentialtoaligntheinterestsofthemangersandshareholdersoratleastreducethedifferenceininterests.InthisregardEconomicValueAddedhasbeenseenasbetteralternativetothetraditionalperformancemeasures-Profits,EPS,ROCEandROEetc.WhilesuccessfulEVAstoriesinthewestarequiteencouraging,empiricalresearchisnotsufficienttoestablishtheclaimofEVAasabettermeasure.Howeverthereisalsonotmuchresearchtoproveitotherwise.IncaseofIndiaeitherwayresearchisveryinadequate.Althoughnotapanacea,EVAbasedcompensationplanswilldrivemanagersemployafirm’sassetsmoreproductivelyandEVAshouldhelpreducethedifferenceintheinterestsofthemanagersandshareholders,ifnotperfectlyalignthem.
Shareholderswantthemaximizationofstockprice(firmvalue).Socanwemeasuretheperformanceofamanagerdirectlyasreflectedbythestockprice-Rewardmanagerswhenstockpricegoesupandpunishthemifstockpricesbehaveotherwise?
Thisapproachhasamajorlimitation.‘Stockpriceisdrivenbysomanyfactorsthatescapefromthecontrolofmanagers,makingitaninefficientmeasureofthetrueinfluenceofthemangersonfirm’svalue.‘Changesinstockprice-intheshortrunatleast–arenotalwaysaccurategauzeofmanagementperformanceduetothepresenceofrandomnessandnoise’(Kangetal,2002).Tyingtopmanagementcompensationtostockpricesraisesanotherdifficultissue.Themarketvalueofacompany’ssharesreflectsinvestors’expectations.Thestockholderreturndependsonhowwellthecompanyperformsrelativetoexpectations’.Supposeacompanyannouncestheappointmentofanoutstandingnewmanager.Thestockpriceleapsupinanticipationofimprovedperformance.Henceforth,evenifthenewmanagerdeliversexactlythegoodperformancethatinvestorsexpected,thestockwillearnonlyanormalaveragerateofreturn.Inthiscaseacompensationschemelinkedtothestockreturnwouldfailtorecognizethemanager’sspecialcontribution.
Anidealperformancemeasureshouldensurethatthemanagerswouldbearalltheconsequencesoftheirownactions,butarenotexposedtothefluctuationsoverwhichtheyhavenocontrol.Insearchofsuchametric–traditionally-companiesareusedtocapturemanagerialperformanceandrewardthemthroughtheoperationbasedmeasureslikeProfits,EPS,ROCEandROE.Howeverthesemeasuresarenotfreefromlimitations.
TraditionalPerformanceMeasures:
Anevaluation
BeforeweproceedtoevaluatehowProfits,EPS,ROCEandROEmeasurethemanagerialperformance,letusunderstandthatmanagersmaximizefirmvaluebyacceptingpositiveNPVinvestments-Investmentsthatearnmorereturnthanthehurdlerate(costofcapital).
Profits
Tyingcompensationtoprofitshasobviousproblems.Anambitiousmanager,expectingaquickcareerjumpmightbetemptedtoearnmoreshort-termprofit-bycuttingorpostponingexpensesonResearch&Development,maintenance,stafftrainingetc–ignoringtheirlongtermconsequences.
Thisapart,profitisanabsolutemeasureofperformanceasitconsidersneitherthecostnorthesizeofcapitalemployedtogeneratethegivenprofit.Sotwocompaniescanneverbedirectlycomparedbasedontheirprofitsandhencetheperformanceoftheirmanagers.
Growthinprofitsdoesnotnecessarilymeanthatshareholdersarebetteroff.Anyinvestmentwithapositiverateofreturn(even2or3percent)willeventuallyincreaseearnings.Ifmanagersaretoldtomaximizegrowthinprofits,theymightpurposefullyinvestinprojectsoffering2or3percentratesofreturn–projectsthatdestroyvalue.
Shareholdersdon’twantgrowthinprofitsforitsownsake,andtheyarenotcontentwith2or3percentreturns.TheywantpositiveNPVinvestments–theywantthecompanytoinvestonlyiftheexpectedrateofreturnexceedsthecostofcapital(hurdlerate).Insomecasestheincrementalprofitsmayresultfromanuneconomicallylargeincreaseininvestmentgeneratingareturnthatisnotadequateeventocoverthecostofcapital.
EarningsperShare(EPS)
EPSisameasurementofcompany’spershareperformance.Itisaratioofnetincometothenumberofsharesoutstanding.
EPS-whencomparedtoprofits-isarelativemeasureasitconsidersthesizeofthecapital(intheformofnumbersofshareholders).Howeverlikeprofitsitdoesn’tconsiderthecostofcapitalinvestedtogeneratetheprofits.
EPSasaperformancemeasuremightmotivatethemanagerstoresorttoinvestmentaslongastheygeneratepositivereturns–nomattertheyaremuchbelowthehurdlerate.
ReturnonCapitalEmployed(ROCE)
ROCEistheratioofnetoperatingprofittothenetoperatingassetsorcapital.
ROCEisanimprovementoverEPSasitlinksthereturnsgeneratedtothecapitalemployed.Howeveritdoesnotincludethecostofsuchcapitalemployed.Forexampletwoinvestmentscan’tberatedasequallygoodeveniftheyhavethesameROCEunlesscostsoffinancingtheseinvestmentsareequal.
Asamanagerialperformancemeasure,ROCEmightencouragemanagerstorejectevengoodinvestments(whoseexpectedreturnsexceedWACC)whensuchreturnsareexpectedtolowerthecurrentAverageROCE.
ReturnonEquity(ROE)
ROEindicateshowmuchthefirmhasearnedonthefundsemployedbytheshareholders.
ROElikeROCEdoesn’tincludecostofcapital(Equityinthiscase)initscomputation.ROEasaperformancemeasuremightencouragemanagerstoacceptinvestmentscapableofaddingsomeearningseveniftheydon’tcoverthecostofcapital/earntherequiredreturn.
Besidesthis,ROEisverystronglyaffectedbycapitalstructurechangesandhencemightnotindicatetheoperatingefficiencyofmanagers.
Whatisanappropriatemeasure?
Anappropriateperformancemeasureshouldassesshowmanagerialactionsaffectthefirmvalue.Forthistohappentheperformancemeasuremustincorporateatleastthreethings.
a.theamountofcapitalinvested
b.thereturnearnedonthecapitaland
c.costofcapital(WACC)–reflectingtheriskadjustedrequiredrateofreturn
Isthereanymeasurethatincludesreturns,capitalemployedandthecostofcapitalemployedinitscomputation?
TheSternStewart&company,aNewYorkCitybasedconsultingfirmanswersthisquestionpositivelyandintroducesitsEconomicValueAdded(EVA).
Economicvalueadded(EVA)providestherupeevaluecreatedforinvestorsinagiventimeperiodbyweighingtheprofitgeneratedbyadecisionagainstthevalueofthecapitalemployedtogeneratethatprofit.
EVAistheAdjustedNetOperatingTaxAfterTax(ANOPAT)foraperiodminusthecapitalcharge(therupeecostofcapital)oftheinvestmentoverthatperiod.
EVAcanbeexpressedas
EVA=AdjustedNetOperatingProfitAfterTaxes(ANOPAT)-CapitalCost
Where
ANOPAT2=CapitalEmployed(CE)XROCE(asROCE=EBIT(1-T)/CE)
CapitalCost=WACCXCapitalEmployed(CE)
Thus
EVA=CapitalEmployed(CE)XROCE-WACCXCapitalEmployed
EVA=(ROCE-WACC)CapitalEmployed
Capitalisgenerallymeasuredbybookvalue.
WACCistheweightedAverageofcostofEquity(generallymeasuredbyCAPM)andcostofDebt.
EVAperformance
IfmanagersaretoldthattheirperformanceismeasuredbyEVAandcompensationislikedtothat,theywouldtrytoimproveEVAbydoingoneormoreofthefollowing.
Improvereturnswiththeexistingcapital.LookattheEVAequation.EVAimprovesifmanagersearnmorereturnswithoutincreasingthecapitalanditscost.
Employcapitalproductively.EVAalsoimproveswhentheyemploylesscapitaltoearnthegivenreturns.Thisforcesthemtoproductivelyemploythecapital.ThiswillalsomotivatemangerstoreturntheexcesscashtotheshareholdersintheabsenceofpositiveNPVprojects.
Reducethecapitalcost.TheEVAimproveswhenweemployagivenlevelofcapitaltoearnagivenlevelofprofit;ifthecostofcapitalcanbereduced.Thisdrivesmanagerstobecarefulwhilefinancingtheinvestments.
Whenmanagersdooneormoreoftheabovethevalueofthefirmincreases.SoimprovingEVAtheoreticallyimprovesthevalueofthefirmandhenceisagoodmeasureofmanagerialperformance.
Whethertheyarecontemplatingenteringnewmarkets,settingproductprices,addingnewservicelines,ormakinganacquisition,managersneedawaytovaluethealternativesandchoosetheonesthatwillproducehighestvaluetothefirm.Cashflowanalysiscanhelpthemtodothat,butEVAcanhelpthemmore(Bhalla2004).
EVAandtheMarketValueAdded(MVA)
Asnotedearlier,themajorattractionwithEVAisthatitislinkedtothevalueofthefirmandhencecapableofsignalingthevaluecreationorotherwiseofit
ItisnottoouncommonthattheMarketValueofafirm(MarketvalueofDebtandMarketvalueofEquity)eitherexceedsorfallsshortofitsBookValue.ThedifferenceistheMarketValueAdded(lost).MVAcanbearrivedatbydiscountingbacktheFutureEVAs.
MVA=FutureEVAsdiscountedback
MarketValueofthefirm=BookValueofthefirm+MVA
andwithsimplifyingassumptionthatmarketandbookvalueofdebtareequal,
MarketValueofEquity=BookValueofEquity+MarketValueAdded
TheMarketValueofequityexceedsitsBookvaluewhentheMVAispositiveandinthiscasetheMarketValueoftheequityissaidtobeatapremium.OntheotherhanditwillbeatadiscountwhenMVAisnegative.
Managersmightwarranthigherpricetoearningsratiosbecausetheyarelikelytoengageinlesspotentialwaste’,Empirical
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