Journal of Accounting Institute

SUBMITINFORMATION
EnglishTürkçe

Research Article


DOI :10.26650/MED.1329674   IUP :10.26650/MED.1329674    Full Text (PDF)

Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA

Hasan Yalçın

The aim of this study is to examine the differences and similarities between economic value added (EVA) and earnings before interest, depreciation, and taxes (EBITDA), two metrics commonly used in financial performance measurement. EVA and EBITDA are important tools used in evaluating company performance and profitability and differ in terms of the financial components they use. While EBITDA is a metric suitable for calculation based on financial statements, the requirement of additional company-specific information for calculating the EVA metric causes it to be left behind in terms of market application. However, the study is important in terms of emphasizing the difference in importance the two metrics have for businesses. The research includes the application and calculation of the metrics covered in the study on the case of Turkish Airlines Inc. (THY). When examining the research findings, the fact that both the EBITDA and EVA metric values for THY are positive shows it to have the appearance of being a value-creating company.

Keywords: Financial Statements Analysis, EBITDA, EVA
JEL Classification : M40 , M41
DOI :10.26650/MED.1329674   IUP :10.26650/MED.1329674    Full Text (PDF)

Finansal Analizde Metrik Çatışması: FAVÖK ve EVA Karşılaştırması ve Bir Uygulama

Hasan Yalçın

Bu çalışmanın amacı, finansal performans ölçümünde yaygın olarak kullanılan iki metrik olan Ekonomik Katma Değer (EVA) ve Faiz, Amortisman ve Vergi Öncesi Kazanç (FAVÖK) arasındaki farklılıkları ve benzerlikleri incelemektir. EVA ve FAVÖK metrikleri, şirket performansını ve kârlılığını değerlendirmede kullanılan önemli araçlar olup; farklı finansal bileşenleri kullanmaları bakımından ayrışmaktadırlar. FAVÖK, finansal tablo temelli hesaplamaya uygun bir metrik iken; EVA metriği hesaplanması için işletmeye özgü ek bilgiler gerekliliği, EVA metriğinin piyasa uygulanması açısından geri planda kalmasına yol açmakla birlikte, çalışma iki metriğin işletmeler açısından farklı önemlerini vurgulamak açısından önem arz etmektedir. Araştırma, çalışma kapsamında ele alınan metriklerin Türk Hava Yolları A.Ş. örneği üzerinden uygulanmasını ve hesaplanmasını içermekte olup, araştırmanın bulguları incelendiğinde; THY’na ait hem FAVÖK hem de EVA metrik değerlerinin pozitif olması işletmenin katma değer yaratan bir işletme görünümüne sahip olduğunu göstermektedir.

Keywords: Finansal Tablolar Analiz, FAVÖK, EVA
JEL Classification : M40 , M41

EXTENDED ABSTRACT


This study presents a comparative analysis of two financial performance measurement metrics: economic value added (EVA) and earnings before interest, depreciation, and taxes (EBITDA). Both metrics are used to evaluate companies’ financial performance, and while the EBITDA metric focuses on companies’ operational profitability, the EVA metric focuses on overall profitability by including the cost of capital in its calculations. In this respect, the EVA metric tries to determine whether a company is generating more value than it spends to finance its operations. Both of these metrics provide valuable insight into companies’ financial performance and can be used to evaluate the effectiveness of management decisions. 

The study also includes the historical developments, definitions, formulations, and comparisons of the EBITDA and EVA metrics by explaining the strong and weak aspects of both measures and emphasizing how both measures are widely used in the business world. When examining the two metrics in terms of sectoral application, the EBITDA metric can be seen to be used more frequently in capital-intensive sectors, while the EVA metric is found to be more useful in sectors where intellectual property and other intangible assets play a larger role in creating value. Within the scope of the research, the EBITDA metric is emphasized to have a broader area of application in short-term planning, while the EVA metric can be used for long-term strategic planning. The EBITDA metric can be calculated based on financial statements, while the EVA metric can be calculated by considering additional data beyond financial statement data. In this regard, the EVA metric is found to not have as much applicability as the EBITDA metric due to the need for additional information.

The literature review that has been conducted within the scope of the research shows an extremely low number of studies to have compared the EBITDA and EVA metrics together, and on this point, important studies are seen in the international literature. In this context, the current research is one of the rare studies in the literature to have compared EBITDA and EVA values. When examining the literature in Türkiye, different studies are found to have considered EBITDA and EVA values as financial performance criteria, with an extremely low number of studies having compared the EBITDA and EVA metrics and evaluated their advantages and disadvantages.

This study examines within its scope the application of these metrics on the case of Turkish Airlines Inc. (THY), which has been considered the most valuable brand in Türkiye consecutively between 2018-2022. Another reason for considering THY within the scope of the research is that ranks first in terms of BIST trading volume. The study uses data that were accessed from the Public Disclosure Platform (KAP) and THY’s official website. The research findings show both the EBITDA and EVA metric values for THY to be positive, thus giving THY the appearance of a value-creating company.

In conclusion, this study provides a comprehensive overview of how the EVA and EBITDA metrics can be used to evaluate a company’s financial performance. Each of these metrics has its advantages and disadvantages, and which metric to use depends on the company’s goals and objectives.

When examining the study’s obtained findings; future studies and researchers are recommended to conduct research and analyses aimed at a long-term comparison of the EBITDA and EVA metrics. The suggestion is also made to integrate the EBITDA metric, which is based on financial statements, into the generally accepted format of financial statements and to provide stakeholders with additional information on company websites and in the footnotes of financial statements about the EVA metric, especially for companies in the investor relations sector. Having investors and stakeholders include EVA metric values in addition to the EBITDA metric in price determination reports is undeniably important, particularly during public offering periods. In this context, the use of EVA metric data in all calculations for companies that have a negative EVA value but a positive EBITDA metric value underlines the importance of assessing both metrics together. 


PDF View

References

  • Abate, J. A., Grant, J. L., ve Stewart, G. B. (2004). The EVA style of investing. The Journal of Portfolio Management, 30(4), 61-72. google scholar
  • Alija, U. (2014). Advantages and disadvantages of application of EVA (Economic Value Added) in public companies: case of Post and Telecommunication of Kosova (PTK). https://web.archive.org/web/20190427235256id_/https://knowledgecenter.ubt-uni.net/cgi/ viewcontent.cgi?article=1127&context=conference (E.T. 16.07.2023) google scholar
  • Al Mamun, A., Entebang, H., ve Mansor, S. A. (2012). EVA as Superior Performance Measurement Tool. Modern Economy, 3, 310 google scholar
  • A Peach, T. (2015). Two Financial Metrics Commonly Encountered When Raising Capital. Technology Transfer and Entrepreneurship, 2(2), 112-115. google scholar
  • Aramyan, L., Ondersteijn, C. J., Van Kooten, O., ve Lansink, A. O. (2006). Performance Indicators In Agri-Food Production Chains. Frontis, 47-64. google scholar
  • Bausch, A., Hunoldt, M., ve Matysiak, L. (2008). Superior Performance Through Value-based Management. İçinde: Bausch, A., Schwenker, B. (Editörler) Handbook Utility Management. (15-36) Springer, Berlin. google scholar
  • Biddle, G. C., Bowen, R. M., ve Wallace, J. S. (1997). Does EVA Beat Earnings? Evidence On Associations with Stock Returns And Firm Values. Journal of Accounting and Economics 24, 301-336 google scholar
  • Brewer, P. C., Chandra, G., ve Hock, C. A. (1999). Economic Value Added (EVA): Its Uses and Limitations. SAM Advanced Management Journal, 64(2), 4. google scholar
  • Chen, S., ve Dodd, J. L. (2001). Operating Income, Residual Income And EVA™: Which Metric is More Value Relevant?. Journal Of Managerial Issues, 65-86. google scholar
  • Chelba, A. A., Melega, A., ve Grosu, V. (2023). Determinants Of Goodwill: Empirical Study from Emerging Economies. International Journal of Innovative Research and Scientific Studies, 6(3), 525-537. google scholar
  • Christian, C., ve Jones, J. P. (2004). The Value-Relevance of Earnings, Operating Cash Flows, and Ebitda During Mergers. Journal of Accounting & Finance Research, 12(3). google scholar
  • Cormier, D., Demaria, S., ve Magnan, M. (2017). Beyond Earnings: Do EBITDA Reporting and Governance Matter for Market Participants? Managerial Finance, 43(2), 193-211. google scholar
  • De Villiers, J. (1997). The Distortions in Economic Value Added (EVA) Caused By Inflation. Journal Of Economics and Business, 49(3), 285-300. google scholar
  • Dodd, J., ve Chen, S. (1997). Economic Value Added (EVA). Arkansas Business and Economic Review, 30(4), 1-9. google scholar
  • Dudin, M. N., Lyasnikov, N. V., Reshetov, K. Y., Smirnova, O. O., ve Vysotskaya, N. V. (2018). Economic Profit As Indicator Of Food Retailing Enterprises’ Performance. European Research Studies Journal, 21(1), 468-479. google scholar
  • Dierks, P. A. (1997). Using EVA at OutSource Inc. Management Accounting (USA), 78(7), 56-59. google scholar
  • Eastman, K. (1996). EBITDA: An Overrated Tool for Cash Flow Analysis. Com. Lending Rev., 12, 64. google scholar
  • Elliffe, C. (2017). Interest Deductibility: Evaluating the Advantage of Earnings Stripping Regimes in Preventing Thin Capitalizations. New Zealand Law Review, 2017(2), 257-284. google scholar
  • Eastman, K. (1996). EBITDA: An Overrated Tool For Cash Flow Analysis. Com. Lending Rev., 12, 64. google scholar
  • Fabricant, S., ve Lipsey, R. E. (1952). Front matter, The Trend of Government Activity in the United States since 1900. İçinde The Trend of Government Activity in the United States Since 1900 (22-0). google scholar
  • Farsio, F., Degel, J., ve Degner, J. (2000). Economic Value Added (EVA) and stock returns. The Financier, 115-119. google scholar
  • Friedl, G. and T. Kettenring (2009), ‘A Note On The War Of Metrics’, TUM Munich, https://citeseerx.ist.psu.edu/ document?repid=rep1&type=pdf&doi=63eb2e2d570fd311084838aef2ee65619cfaa73f (E.T. 16.07.2023) google scholar
  • Godwin, N. H., & Jones, J. P. (2002). Does EBITDA Adequately Measure Operating Cash Flow?. Journal of Accounting and Finance Research, 10(1), 25. google scholar
  • Grant, J., ve Parker, L. (2002). EBITDA! Research In Accounting Regulation, (15), 205-212. google scholar
  • Grigorieva, S., ve Petrunina, T. (2015). The Performance Of Mergers And Acquisitions In Emerging Capital Markets: New Angle. Journal Of Management Control, 26(4), 377-403. google scholar
  • Grishunin, S., Suloeva, S., ve Burova, E. (2022). Development of Risk Management Mechanism and the System of Risk Metrics to Evaluate and Enhance the Long-Term Orientation of the Strategies of Non-Financial Companies. Risks, 10(9), 182. google scholar
  • Gupta, V. K., ve Sikarwar, E. (2016). Value Creation of EVA And Traditional Accounting Measures: Indian Evidence. International Journal of Productivity And Performance Management, 65(4), 436-459. google scholar
  • Hatfield, G.R., (2002) R&D in an EVA World, Research-Technology Management, 45(1) 41-47 google scholar
  • Hrytsenko, L. L., ve Derkach, L. (2021). The Posibility of EBIT And EBITDA Use In Ukrainian Practice Of Determining The Company Efficiency (Doctoral Dissertation, Sumy State University). google scholar
  • Hong, J. W., Meidell, J. E., ve Kim, H. J. (2023). M&A Valuation for Going Concern: A Case Study Using Samsung Electronics’ Adjusted EBITDA Multiple. Cogent Business & Management, 10(2), 2209975. google scholar
  • Iotti, M., ve Bonazzi, G. (2012). Ebitda/Ebit and Cash Flow Based Icrs: A Comparative Approach İn The Agro-Food System in Italy. Financial Assets and Investing, 3(2), 19-31. google scholar
  • Ivashina, V., ve Kovner, A. (2011). The Private Equity Advantage: Leveraged Buyout Firms And Relationship Banking. The Review of Financial Studies, 24(7), 2462-2498. google scholar
  • Jalbert, T., ve Landry, S. P. (2003). Which Performance Measurement Is Best for Your Company? Management Accounting Quarterly, 4(3), 32-32. google scholar
  • Jordâo, R. V. D., Almeida, V. R. D., ve Novas, J. (2022). Intellectual Capital, Sustainable Economic and Financial Performance And Value Creation In Emerging Markets: The Case Of Brazil. The Bottom Line, 35(1), 1-22. google scholar
  • Lee, S., ve Kim, W. G. (2009). EVA, Refined EVA, MVA, Or Traditional Performance Measures for The Hospitality Industry?. International Journal of Hospitality Management, 28(3), 439-445. google scholar
  • Lin, C. S., Chiu, C. M., Huang, Y. C., Lang, H. C., & Chen, M. S. (2021). Evaluating The Operational Efficiency and Quality Of Tertiary Hospitals In Taiwan: The Application Of The EBITDA Indicator To The DEA Method And TOBIT Regression. In Healthcare 10(1) (58). google scholar
  • Luciano, R. (2003). EBITDA [Earnings Before Interest, Tax, Depreciation and Amortization] As an Indicator Of Earnings Quality. JASSA, (1), 29-34. google scholar
  • Kyriazis, D., ve Anastassis, C. (2007). The Validity of The Economic Value-Added Approach: An Empirical Application. European Financial Management, 13(1), 71-100. google scholar
  • Mendez. C. A. B. (2007). EBITDA, Es Un Indicador Financiero Contable De Agregaci6n De Valor? Capiv Review. Santiago (Chile), (5) 41-54. google scholar
  • Moro-Visconti, R. (2022). Profitability and Value Creation. In Augmented Corporate Valuation: From Digital Networking to ESG Compliance (179-215). Cham: Springer International Publishing. google scholar
  • Nissim, D. (2019). EBITDA, EBITA, or EBIT?. Columbia Business School Research Paper, (17-71). google scholar
  • Neto, J. V., Ibanez, F. C., De Oliveira Costa, C. L., ve Pimentel, L. B. (2015). Comparison Of Traditional Financial Accounting Indicators Wıth Eva® Companıes in The Buıldıng in Order To Assess Its Advantages And Disadvantages. Brazilian Journal Of Operations & Production Management, 12(1), 100-115. google scholar
  • O’Byrne, S. F. (2016). A Better Way to Measure Operating Performance (Or Why The EVA Math Really Matters). Journal of Applied Corporate Finance, 28(3). 68-86. google scholar
  • O’Byrne, S. F., (1999). “Eva And Its Critics,” Journal of Applied Corporate Finance, Morgan Stanley, 12(2), 92-96, June. google scholar
  • Persson, E., ve Stâhlberg, C. (2007). PE And EV/EBITDA Investment Strategies vs. The Market: A Study of Market Efficiency. Master Thesis, International Business Program., Linkoping University, Sweden www.diva-portal.org/smash/record.jsf?pid=diva2:23073 (E.T.26.06.2023) google scholar
  • Rajan, M. V. (2000). Discussion of EVA versus Earnings: Does It Matter Which Is More Highly Correlated with Stock Returns? Journal of Accounting Research, (38) 247. google scholar
  • Rozenbaum, O. (2019). EBITDA And Managers’ Investment And Leverage Choices. Contemporary Accounting Research, 36(1), 513-546. google scholar
  • Roztocki, N., ve Needy, K. L. (1999). EVA For Small Manufacturing Companies. İçinde; the 1999 SAM International Management Conference (461-469). google scholar
  • Rugg, G., Eva, M., Mahmood, A., Rehman, N., Andrews, S., ve Davies, S. (2002). Eliciting information about organizational culture via laddering. Information Systems Journal, 12(3), 215-229. google scholar
  • Sharma, A. K., ve Kumar, S. (2010). Economic Value Added (EVA)-Literature Review and Relevant Issues. International Journal of Economics and Finance, 2(2), 200-220. google scholar
  • Stewart, B. (2019). EVA, not EBITDA: A New Financial Paradigm for Private Equity Firms. Journal of Applied Corporate Finance, 31(3), 103-115. google scholar
  • Stewart, B. (2013). Best-Practice EVA: The Definitive Guide to Measuring and Maximizing Shareholder Value. John Wiley & Sons. google scholar
  • Stewart, B. G. (1994). EVA: Fact And Fantasy. Journal of Applied Corporate Finance, 7, 71-84. google scholar
  • Sung, N. (2014). Declining First-Mover Advantage in Mobile Telecommunications Markets. The Service Industries Journal, 34(2), 89-102. google scholar
  • Tortella, B. D., ve Brusco, S. (2003). The Economic Value Added (EVA): An Analysis of Market Reaction. Advances in Accounting, (20) 265-290. google scholar
  • Wernke, R., Junges, I., ve Schlickmann, L. (2015). Aplicaçâo Comparativa Entre EVA E EBITDA: Estudo De Caso Em Empresa Fabril. Revista Contemporânea de Contabilidade, 12(27), 87. google scholar
  • Van der Poll, H. M., Booyse, N. J., Pienaar, A. J., ve Foot, J. (2011). An Overview of The Implementation Of Economic Value Added (EVA) Performance Measures In South Africa. Southern African Business Review,15(3), 122-141. google scholar
  • Vertakova, Y. vd. (2022). “Multiplicative Methodology for Assessing Investment Attractiveness and Risk for Industries,” JRFM, MDPI, 15(10), 1-9. google scholar
  • Vimrova, H. (2015). Financial Analysis Tools, From Traditional Indicators Through Contemporary Instruments to Complex Performance Measurement and Management Systems In The Czech Business Practice. Procedia Economics and Finance,25, 166-175. google scholar
  • Visaltanachoti, N., Luo, R., ve Yi, Y. (2008). Economic Value Added (Eva) And Sector Returns. Asian Academy of Management Journal of Accounting & Finance, 4(2). google scholar
  • Worthington, A. C., ve West, T. (2001). Economic Value-Added: A Review Of The Theoretical And Empirical Literatüre. Asian Review of Accounting, 9(1), 67-86. google scholar
  • Zaporozhtseva, L., Tkacheva, Y., Malitskaya, V., Shishkina, L., ve Popov, D. (2020). Formation Tools of Financial Strategy for the Development of Agricultural Organizations. İçinde International Conference on Policicies and Economics Measures for Agricultural Development (AgroDevEco 2020) (456-461). Atlantis Press google scholar
  • Zaremba, A., & Szczygielski, J. J. (2019). And The Winner is... A Comparison of Valuation Measures for Equity Country Allocation. The Journal of Portfolio Management, 45(5), 84-98. google scholar

Citations

Copy and paste a formatted citation or use one of the options to export in your chosen format


EXPORT



APA

Yalçın, H. (2024). Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA. Journal of Accounting Institute, 0(70), 39-57. https://doi.org/10.26650/MED.1329674


AMA

Yalçın H. Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA. Journal of Accounting Institute. 2024;0(70):39-57. https://doi.org/10.26650/MED.1329674


ABNT

Yalçın, H. Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA. Journal of Accounting Institute, [Publisher Location], v. 0, n. 70, p. 39-57, 2024.


Chicago: Author-Date Style

Yalçın, Hasan,. 2024. “Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA.” Journal of Accounting Institute 0, no. 70: 39-57. https://doi.org/10.26650/MED.1329674


Chicago: Humanities Style

Yalçın, Hasan,. “Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA.” Journal of Accounting Institute 0, no. 70 (May. 2024): 39-57. https://doi.org/10.26650/MED.1329674


Harvard: Australian Style

Yalçın, H 2024, 'Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA', Journal of Accounting Institute, vol. 0, no. 70, pp. 39-57, viewed 8 May. 2024, https://doi.org/10.26650/MED.1329674


Harvard: Author-Date Style

Yalçın, H. (2024) ‘Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA’, Journal of Accounting Institute, 0(70), pp. 39-57. https://doi.org/10.26650/MED.1329674 (8 May. 2024).


MLA

Yalçın, Hasan,. “Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA.” Journal of Accounting Institute, vol. 0, no. 70, 2024, pp. 39-57. [Database Container], https://doi.org/10.26650/MED.1329674


Vancouver

Yalçın H. Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA. Journal of Accounting Institute [Internet]. 8 May. 2024 [cited 8 May. 2024];0(70):39-57. Available from: https://doi.org/10.26650/MED.1329674 doi: 10.26650/MED.1329674


ISNAD

Yalçın, Hasan. “Metric Conflict in Financial Analysis: A Comparison and Application of EBITDA and EVA”. Journal of Accounting Institute 0/70 (May. 2024): 39-57. https://doi.org/10.26650/MED.1329674



TIMELINE


Submitted19.07.2023
Accepted11.12.2023
Published Online07.03.2024

LICENCE


Attribution-NonCommercial (CC BY-NC)

This license lets others remix, tweak, and build upon your work non-commercially, and although their new works must also acknowledge you and be non-commercial, they don’t have to license their derivative works on the same terms.


SHARE




Istanbul University Press aims to contribute to the dissemination of ever growing scientific knowledge through publication of high quality scientific journals and books in accordance with the international publishing standards and ethics. Istanbul University Press follows an open access, non-commercial, scholarly publishing.