Benefits of EVA for the Company

Oct 13, 2025 by wbrum.org 128 views

Measuring the Performance of PT. Indonesian Telecommunications: Economic Value Added (EVA) as a Clearer Lens

In the business world, measuring company performance is a complex task. Traditional measuring instruments such as net profit often fail to provide a comprehensive picture of how companies create value for shareholders. This is where Economic Value Added (EVA) plays a crucial role. EVA, which in Indonesian is called "nilai tambah ekonomi" (nitami), provides a more holistic perspective on financial performance by considering the cost of capital in its calculations.

EVA is a performance measurement tool that has gained popularity in recent years due to its ability to provide a more accurate picture of a company's financial performance. By considering the cost of capital, EVA takes into account the opportunity cost of using capital, which is not reflected in traditional measures such as net profit. This makes EVA a more comprehensive measure of a company's financial performance.

The Concept of EVA: More Than Just a Net Profit

The concept of EVA is different from other traditional measuring devices because it takes into account the cost of capital (Cost of Capital, COC). COC is the cost incurred by the company to obtain the funds used in its business, such as debt and equity. In the calculation of EVA, net profit after tax (NOPAT) is reduced by COC. This means that EVA is calculated as follows:

EVA = NOPAT - COC

If EVA is positive, the company has succeeded in creating value for shareholders. Conversely, if EVA is negative, the company is considered unable to create enough value to cover its capital costs.

Performance of PT. Indonesian Telecommunications, Tbk: A Success Story

The results of the analysis showed that PT. Telekomunikasi Indonesia, Tbk managed to score a positive EVA value during the 2003-2005 period, showing good financial performance.

*** 2003: EVA amounting to Rp 2,223 trillion *** 2004: EVA increased to Rp. 4,731 trillion *** 2005: EVA continues to increase to reach Rp. 7,236 trillion

This increase in EVA's value indicates that PT. Indonesian telecommunications, Tbk is able to produce higher profits than its capital cost. This indicates that the company is able to manage the business well and create added value for shareholders.

Benefits of EVA for the Company

The use of EVA as a performance measurement tool provides several benefits for PT. Indonesian telecommunications, Tbk, including:

Increasing Transparency and Accountability

EVA forces the company to consider capital costs in decision making, thereby increasing transparency and financial accountability.

Strengthening the Focus on the Creation of Value

EVA encourages the company to focus on creating value for shareholders, not only on increasing net profit.

Facilitating Better Decision Making

EVA assists companies in identifying the most profitable business areas and directing investments to areas that can create greater added value.

Conclusion

The use of EVA as a measure of financial performance provides a more accurate picture of the performance of PT. Telekomunikasi Indonesia, Tbk. The results of this study indicate that the company succeeded in creating added value for shareholders during the 2003-2005 period. By continuing to adopt EVA as a measurement tool, PT. Indonesian telecommunications, Tbk can strengthen focus on the creation of values and improve financial performance in the future.

Recommendations

Based on the findings of this study, the following recommendations are made:

PT. Indonesian telecommunications, Tbk should continue to use EVA as a performance measurement tool to ensure that the company is creating value for shareholders.
The company should focus on identifying the most profitable business areas and directing investments to areas that can create greater added value.
The company should also consider using EVA to evaluate the performance of its subsidiaries and affiliates.

Limitations of the Study

This study has several limitations, including:

The study only analyzed the performance of PT. Indonesian telecommunications, Tbk during the 2003-2005 period.
The study only used secondary data, which may not be comprehensive or accurate.
The study did not consider other factors that may affect the company's financial performance, such as market conditions and competition.

Future Research Directions

Future research should focus on:

Analyzing the performance of PT. Indonesian telecommunications, Tbk during other periods to see if the company's financial performance has changed.
Using primary data to gather more comprehensive and accurate information about the company's financial performance.
Considering other factors that may affect the company's financial performance, such as market conditions and competition.

Conclusion

In conclusion, this study has shown that EVA is a useful tool for measuring the financial performance of PT. Indonesian telecommunications, Tbk. The company's positive EVA value during the 2003-2005 period indicates that it is able to create value for shareholders. By continuing to use EVA as a performance measurement tool, PT. Indonesian telecommunications, Tbk can strengthen focus on the creation of values and improve financial performance in the future.

What is Economic Value Added (EVA)?

Economic Value Added (EVA) is a financial metric that measures a company's financial performance by considering the cost of capital. It is calculated by subtracting the cost of capital from net operating profit after taxes (NOPAT).

How is EVA calculated?

EVA is calculated as follows:

EVA = NOPAT - (Cost of Capital x Total Capital)

Where:

NOPAT is the net operating profit after taxes
Cost of Capital is the cost of capital, which includes the cost of debt and equity
Total Capital is the total amount of capital used by the company

What is the significance of EVA?

EVA is significant because it provides a more accurate picture of a company's financial performance by considering the cost of capital. It helps to identify whether a company is creating value for its shareholders or not.

What are the benefits of using EVA?

The benefits of using EVA include:

Increased transparency and accountability: EVA forces companies to consider capital costs in decision making, thereby increasing transparency and financial accountability.
Strengthening the focus on the creation of value: EVA encourages companies to focus on creating value for shareholders, not only on increasing net profit.
Facilitating better decision making: EVA assists companies in identifying the most profitable business areas and directing investments to areas that can create greater added value.

What are the limitations of EVA?

The limitations of EVA include:

Difficulty in calculating EVA: EVA requires a detailed understanding of a company's financial statements and the cost of capital.
Subjectivity in determining the cost of capital: The cost of capital can be subjective and may vary depending on the company's risk profile and market conditions.
Limited applicability: EVA may not be applicable to all companies, particularly those with complex financial structures or those that are not publicly traded.

How can EVA be used in practice?

EVA can be used in practice in the following ways:

Performance evaluation: EVA can be used to evaluate a company's financial performance and identify areas for improvement.
Investment decisions: EVA can be used to identify the most profitable business areas and direct investments to areas that can create greater added value.
Risk management: EVA can be used to identify potential risks and develop strategies to mitigate them.

What are the differences between EVA and other financial metrics?

The differences between EVA and other financial metrics include:

EVA vs. Net Profit: EVA considers the cost of capital, while net profit does not.
EVA vs. Return on Equity (ROE): EVA considers the cost of capital, while ROE does not.
EVA vs. Return on Investment (ROI): EVA considers the cost of capital, while ROI does not.

How can EVA be used in conjunction with other financial metrics?

EVA can be used in conjunction with other financial metrics, such as:

Net Profit: EVA can be used to evaluate a company's financial performance and identify areas for improvement.
Return on Equity (ROE): EVA can be used to evaluate a company's financial performance and identify areas for improvement.
Return on Investment (ROI): EVA can be used to evaluate a company's financial performance and identify areas for improvement.

What are the future developments in EVA?

The future developments in EVA include:

Increased use of EVA in practice: EVA is becoming increasingly popular in practice, particularly among large corporations.
Development of new EVA metrics: New EVA metrics are being developed to provide a more comprehensive picture of a company's financial performance.
Integration of EVA with other financial metrics: EVA is being integrated with other financial metrics to provide a more comprehensive picture of a company's financial performance.