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What is Economic value Added Analysis (EVA)?

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Question ajoutée par Naveen Moras , Account Manager , Apex Group Ltd
Date de publication: 2015/02/28
Utilisateur supprimé
par Utilisateur supprimé

Its a method of measuring of shareholders wealth.

 

Economic value added attempts to capture the true economic profit of a company. It is a performance measure.

 

Economic value added (EVA) is also referred to as economic profit.

 

EVA could be used for the following:

 

  • Setting company goals
  • Performance management
  • Bonus determination
  • Communication to shareholders and investors in simple way
  • Manager motivation
  • Corporate valuation
  • Capital budgeting

 

The formula for EVA is:

 

EVA = Net Operating Profit After Tax - (Capital Invested x WACC)

 

Economic Valued Added is based on the idea that business must cover both OPERATING COSTS and CAPITAL COSTS

Mir Mujtaba Ali
par Mir Mujtaba Ali , Internal Audit Manager , Confidential

 

EVA = Net Operating Profit After Taxes - (Capital * Cost of Capital)

It is a 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).

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