TECO was found in 1956 as Tong Yuen Electric Company in Taipei, Taiwan. It started with the initial capital of 200 thousand US$. And the first product of the TECO was induction motors. Overtime they expanded to other product lines those where ( IT, Home automation and Factory automation) The TECO Management believes that the success of the company was because of Value added method which was used to evaluate the performance of the company and to distribute bonus to its employees. Management also developed a formula by which they use to divide the bonus to its employees. But later on some managers came up with some issues. First one was related to the calculation of value added second issue was related to corporate value added and Third was related lower level employees,if they understand Value added system.

ECONOMIC VALUE ADDEDA measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis)EVA=Net Operating Profit after Taxes (NOPAT) - (Capital * Cost of Capital)CASH VALUE ADDEDA measure of the amount of cash generated by a company through its operations. It is computed by subtracting the 'operating cash flow demand' from the 'operating cash flow' from the cash flow statement.PROS Possible to estimate companys return to stakeholdersEVA is a form of residual income so its a measure of how much value a company has created. EVA would require the TECO Management to provide a return above what investors expect to receive. Since the company want to keep the shareholders happy they would have to work on creating a higher EVA which will makes the shareholders happier. Has effects on all levels of employeesIf EVA is implemented in TECO, over time their employees become acquainted with how the different processes help in value creation. This will make them realise every decision they take has an effect on the company so their decisions would be in the best interest of the company, especially if the bonuses are based on EVA as they can earn a lot. Ability to monitor performance at divisional levelTECO has been split into three divisional structures Home automation, Factory automation, Information technology. Basically these are functionally different from each other and would have divisional managers for the same. For example if Home Automation WACC was 10 % and IT was 20 %. Home Automation had 13 % return and IT has 16 % return, from this we can understand Home Automation did better than IT in terms of return. So if its spilt as divisions the managers of Home would receive bonus and IT cant claim this bonus. CVA measures how strong the company is in terms of liquidityAll business need a certain amount of cash flow for its day to day operations which can be called as required cash flow. Cash Value added would be the extra cash in excess of the required cash flow. So when the investors of TECO see how much Cash Value they have they can judge the liquidity of the company. The higher the CVA it means the better it is for TECO to take advantage of opportunities.

CONS EVA is too present mindedIf EVA is implemented in TECO its possible that some managers feel that they can liquidate their assets prematurely in order to receive benefits from selling parts of the company which may or may not be beneficial.

Difficulty in Implementing EVA across all levels of employeesIf TECO is not able to explain the concept of EVA to all levels of employees and if it only remains with the higher level of management, its potential is lost among the lower level of employees. The capacity of lower level employees should not be judged and if its well explained it would be in the interest of the company. CVA can be a complex conceptTo arrive at the cash value involves complex calculations, difficult adjustments, a great degree in rightly being able to judge and it can also be hard to interpret the results.