Advanced Financial Management · Strategic business and financial planning for multinational organisations

EVA, Balanced Scorecard and Not-for-Profit Objectives in AFM

Updated 11 October 2026 · Fact-checked

Performance measurement in AFM checks whether a organisation meets its objectives. For companies you use ratios, EVA and the balanced scorecard. For not-for-profit bodies you judge value for money: economy, efficiency and effectiveness. Calculate the measure, then interpret it against the objective and the scenario.

Understand Financial Planning, Performance Measures and Not-for-Profit Objectives

Every organisation needs a way to tell if it is succeeding. That starts with objectives. A listed company usually aims to maximise shareholder wealth. A charity, school or public body aims to deliver a service or social outcome within a budget. A measure is only useful if it links to the objective.

Financial measures include profit margins, return on capital employed (ROCE), gearing, interest cover, liquidity ratios and earnings per share. They are easy to compute but look backwards, can be distorted by accounting policy, and can encourage short-term behaviour.

Economic value added (EVA) tries to fix this. It asks whether the business earned more than the cost of the capital used. If operating profit after tax exceeds the capital charge, value is created. EVA uses adjusted figures: for example, research and development or training spend can be capitalised, because it benefits future years. This reduces the incentive to cut such spend. The result is closer to shareholder wealth than accounting profit.

The balanced scorecard adds non-financial measures. It looks at four perspectives: financial, customer, internal business processes, and innovation and learning. Each perspective links to strategy and has goals, measures and targets. It is forward looking. Its risks are too many measures, weak links between perspectives, and targets that are hard to quantify.

Not-for-profit (NFP) organisations have multiple, often unclear objectives and several stakeholders, such as funders, users and government. Profit is not the main aim, so you judge value for money using the three Es: economy (inputs bought at lowest cost for the right quality), efficiency (maximum output per input) and effectiveness (outputs achieving the objectives). Some add equity. Outputs are hard to value, so proxies are used. In AFM, always apply the measures to the scenario and comment on limits.

Key rules to remember

EVA: EVA = NOPAT − (WACC × capital employed at start of period); NOPAT is net operating profit after tax, adjusted as the question tells you (for example, adding back R&D that is capitalised). Use opening capital employed unless told otherwise. Capital employed must include the same adjustments.
Return on capital employed (ROCE): ROCE = Operating profit ÷ (Total assets − Current liabilities) × 100; Compare with the cost of capital. State the definition you use, as definitions vary.
Operating profit margin: Operating profit margin = Operating profit ÷ Revenue × 100; Pair with asset turnover to explain changes in ROCE.
Asset turnover: Asset turnover = Revenue ÷ Capital employed; ROCE = operating margin × asset turnover.
Interest cover: Interest cover = Operating profit ÷ Finance costs; Shows how easily interest is paid from profit.
Gearing: Gearing = Debt ÷ Equity, or Debt ÷ (Debt + Equity); Say which version you use and stay consistent.
Value for money (three Es): Economy = cost of inputs; Efficiency = output ÷ input; Effectiveness = outcomes achieved against objectives; Use these as a framework for any not-for-profit performance question.

How to solve Financial Planning, Performance Measures and Not-for-Profit Objectives questions

Use this approach for any question on performance measures or not-for-profit objectives.

1Read the requirement and note the type of organisation and its objectives. Decide whether the question wants calculation, interpretation or both.
2Pick the measures that match the objective. A shareholder-wealth aim points to EVA and returns; a service aim points to the three Es and non-financial measures.
3Calculate carefully. State definitions and make any adjustments the question asks for. Show workings so marks can be given even if a figure is wrong.
4Compare the results with a benchmark: prior year, target, competitor or cost of capital. A number alone earns little.
5Explain the causes, using the scenario: margin versus asset turnover, one-off items, accounting policy, or timing.
6Discuss limits: backward looking, manipulation, missing non-financial factors, hard-to-measure outputs.
7Give a reasoned recommendation or conclusion, and any further information needed. Write for the stated reader (board, trustees, client).

Quickest way: Calculate, compare, explain

When to use it: Use when time is short and the question mixes numbers with comment.

Do only the two or three calculations that answer the requirement.
Write one line on what each result means against a benchmark.
Give two reasons from the scenario for the result.
Add one limitation and one non-financial measure.
For NFP, structure the answer under economy, efficiency and effectiveness, with a scenario point under each.

Common mistakes in Financial Planning, Performance Measures and Not-for-Profit Objectives

Using closing capital employed or an unadjusted profit figure in EVA when the question gives adjustments.
Students rush and copy figures straight from the statements.
Fix: Underline the adjustments in the question. Restate NOPAT and capital employed before applying the WACC.
Listing ratios without interpreting them.
Calculation feels safe and commentary feels vague.
Fix: For every ratio write: what it is, how it moved, why, and what it means for the objective.
Describing the four balanced scorecard perspectives generically.
Students memorise the headings only.
Fix: Give a specific goal, measure and target for each perspective, drawn from the scenario.
Judging a not-for-profit body by profit or surplus alone.
Students carry over the commercial mindset.
Fix: Anchor on its mission and the three Es. Treat surplus as a constraint, not the aim.
Confusing efficiency with effectiveness.
Both sound like 'doing well'.
Fix: Efficiency is output per unit of input. Effectiveness is whether the outcome met the objective. A cheap, fast service can still be ineffective.
Ignoring the limitations of EVA, such as dependence on the accuracy of WACC and adjustments.
EVA is presented as a cure for accounting distortion.
Fix: Always add that EVA is still historic, needs judgement on adjustments, and does not capture non-financial drivers.

Worked examples

Example 1

A division has opening capital employed of $40 million and NOPAT of $5.2 million. The group WACC is 10%. The division expensed $2 million of R&D this year, which management agrees should be capitalised and treated as part of opening capital. Tax is ignored for the R&D adjustment, and the R&D is already deducted in the $5.2 million. Calculate EVA before and after the adjustment and comment.

Show the solution

Before adjustment: capital charge = 10% × $40m = $4.0m.
EVA before = $5.2m − $4.0m = $1.2m.
After adjustment: NOPAT = $5.2m + $2.0m = $7.2m (R&D added back, as it is treated as an investment).
Capital employed = $40m + $2.0m = $42.0m.
Capital charge = 10% × $42.0m = $4.2m.
EVA after = $7.2m − $4.2m = $3.0m.
Comment: EVA is positive either way, so the division creates value. The adjustment raises EVA because R&D is treated as an investment rather than an expense, which removes the incentive to cut R&D. The result depends on the WACC and on the judgement that the R&D will produce future benefits.

Answer: EVA is $1.2m before and $3.0m after adjustment. The division creates value, but the adjusted figure rests on judgement about R&D.

Example 2

A charity runs a free health clinic. Last year it spent ₹60,00,000 and treated 12,000 patients. This year it spent ₹57,60,000 and treated 14,400 patients, but the share of patients reporting improved health fell from 80% to 70%. Assess value for money.

Show the solution

Cost per patient last year = ₹60,00,000 ÷ 12,000 = ₹500.
Cost per patient this year = ₹57,60,000 ÷ 14,400 = ₹400.
Efficiency has improved: cost per patient fell by ₹100, or 20%, and output rose by 20% on lower spending.
Patients with improved health last year = 80% × 12,000 = 9,600. Cost per improved patient = ₹60,00,000 ÷ 9,600 = ₹625.
Patients with improved health this year = 70% × 14,400 = 10,080. Cost per improved patient = ₹57,60,000 ÷ 10,080 = ₹571.43 (approx).
Effectiveness: the success rate fell, so quality or fit to need may have suffered. Even so, cost per improved patient fell.
Economy cannot be judged without input prices and quality. Check whether savings came from cheaper inputs or from thinner staffing.
Conclusion: value for money looks better on cost per outcome, but the fall in success rate needs investigation before more patients are added.

Answer: Cost per patient fell from ₹500 to ₹400 and cost per improved patient from ₹625 to about ₹571. Efficiency improved. The drop in success rate from 80% to 70% is a warning on effectiveness.

Exam tips

In AFM, marks are split between technical content and professional skills. Give a clear conclusion and a reasoned recommendation to earn the skills marks.
Show EVA workings line by line. Marks are given for the method even if an adjustment is wrong.
For the balanced scorecard, tie every measure to a strategic objective in the case. Unlinked lists score poorly.
For not-for-profit questions, name the stakeholders and their different objectives before you assess value for money.
State any assumptions, such as the ratio definitions you use, before presenting figures.

Practice questions from Strategic business and financial planning for multinational organisations

Financial Planning, Performance Measures and Not-for-Profit Objectives in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsMeasuring Performance and Problems in Not-for-Profit Organisations

Financial Planning, Performance Measures and Not-for-Profit Objectives: frequently asked questions

What is EVA and how is it calculated in AFM?

EVA is the profit left after charging for the capital used. You calculate it as NOPAT less WACC multiplied by capital employed. Make the adjustments the question specifies, such as capitalising R&D.

What are the four perspectives of the balanced scorecard?

They are financial, customer, internal business processes, and innovation and learning. For each one, set goals, measures and targets linked to strategy. In the exam, use measures that fit the scenario.

How do you measure value for money in a not-for-profit organisation?

Use economy, efficiency and effectiveness. Economy looks at input costs, efficiency at output per input, and effectiveness at whether the objectives were met. Add the limits, since outputs are often hard to value.

Why can profit-based ratios mislead when judging performance?

They look backwards and can be affected by accounting policies and short-term decisions. They also ignore the cost of capital and non-financial drivers. That is why EVA and the balanced scorecard are used alongside them.