Western Chemical Corporation is a company which faces some problems in performance measurement on three of their nineteen plants. These have different ownership structure and are located in different countries. The first one, in Czech Republic, is in Joint Venture with a local partner, and the other are totally owned.
The problems comes from two main drivers: different financial structures and reports, because both internal and external are made by the same staff. The proposed solution to the former is to create two different staff which work starting from the same database, analysing data from different point of view, each group with own performance indicators.
Regarding financial structure, the Czech plant suffers a relevant loss, but from WCC’s point of view, it’s not a problem because the fees compensate the loss producing 221$ of net income. Instead on income statement the fees are recorded as a loss, so the final result is distorted.
An alternative approach is the EVA one. It shows a negative result for all the three plants, that means a destruction of wealth. This approach has the disadvantage against other traditional indicators as ROE, ROS, ROIC etc. that couldn’t be used to compare performance of plants with different size.
Thus, we think it’s right to analyse performance comparing different ratio indicators as ROE, ROS, ROIC with EVA because we can have a more complete view of the real performance of each plant according also with their financial structure. In fact, as you could see from the slides, every ratio indicates a particular of a plant, given by its capital structure (leverage) or its efficiency in production.
These indicators are very useful to help Samantha Chu to understand the performance of these WCC’s foreign investments. It’s evident how Czech plant can use a financial leverage effect but has an overcapacity, how Poland one is more efficient in production (highest Capital Turnover) and how Malaysia is... [continues]
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