Operating Risk (Cost-Volume-Profit) and Economic Value Added (EVA®)

Abstract

Today, it is unquestionable the importance that organizational management is supported by indicators. Also, knowledge of value creation and operating risk are information that differentiates this management support. This study aimed to verify the relationship between the value creation generated by companies included in the sample and the indicators used in operating risk (cost-volume-profit analysis). In the literature review the concept of value creation and the indicators usually used to measure operating risk, break-even point, margin of safety, and degree of operating leverage, were presented and characterized, as well as the Economic Value Added (EVA®), which was the value-based performance measure used in the study. The sample consists of 27 non-financial companies listed in Euronext Lisbon and the period analyzed was the one between 2014 and 2018. The data were obtained through the consolidated annual accounts of the sample companies, and its analysis was performed using the multivariate statistical analysis technique, linear regression. The results showed that the estimated multiple linear regression model allowed, with a very reasonable quality, to estimate the impact that the break-even point and the margin of safety variables have on the variation of the value of EVA®. This study gives significant information showing how operating risk indicators affect value creation, which is considered one the main objectives of companies.