The business environment is increasingly complex and demanding, and companies now face a pandemic situation with severe repercussions for the global economy. With this in mind, it is clear that the information provided by financial analysis is more than ever an essential instrument for management control, for decision making. Value creation is considered one of management's primary objectives; however, there is still no consensus on the superiority of value-based measures over traditional measures based on profit. The study intends to highlight the importance of complementing the financial analysis, based on traditional valuation measures, using value creation as an essential management control instrument. Thus, using the case study methodology, an analysis of historical performance will be performed using data from a company listed on Euronext Lisbon from 2014 to 2018. Economic Value Added (EVA®) was used to measure value creation.
TopIntroduction
Companies presently act in an increasingly complex and demanding business environment, now aggravated by the pandemic originated by Coronavirus Disease (COVID-19), with the first cases reported in December 2019 in Wuhan, China. The consequences for the global economy are yet unknown, but they will undoubtedly be severe.
In this scenario, the information provided by financial analysis is more than ever an essential instrument for management control for decision making. To better define and control strategies, companies need timely and quality financial information.
Modern finance theory considers one of the main objectives for any company to maximize its value creation (Assaf Neto, 2014). The fact that a company generates profitability in its business does not mean, that is, creating value since it may not be enough to pay off the entire invested capital. In assessing value creation, all of the costs are considered, including investors’ return expectations. Therefore, including the assessment of value creation in the financial analysis reports allows for a better knowledge of the factors that affect this value creation to ensure the company’s sustainability and attractiveness to investors.
Several studies have focused on the superiority of value-based measures over traditional measures based on profit, but the results are not consensual. The study’s purpose was to show how value creation can act as a complement rather than a substitute for traditional performance measures.
To this end, The Navigator Company’s historical business performance was analyzed from 2014 to 2018. The analysis focused on the company’s ability to generate earnings, capital structure and management, cash flow, and value creation in an integrated way, thus providing a comprehensive view of the company’s actual financial situation.
In the literature review, financial analysis and the concepts inherent to historical financial performance analysis were addressed, such as financial balance, profitability, risk, as well as value creation measured by the Economic Value Added (EVA®).
The study has its relevance by demonstrating how value creation can be an improvement to financial information when combined with traditional analysis. It provides knowledge on integrated financial analysis, thus providing crucial information to support decision making.
In terms of its structure, the study, in addition to this introduction, includes four more sections: literature review, methodology, empirical study, and conclusion.