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Economic Value Added (EVA)

Economic Value Added (EVA) is a financial tool used to calculate the dollar return on an investment after taxes, the cost of the capital used for the investment and the cost of assets used in the creation of the product. The after-tax profit minus the product of the cost of the assets times the weighted average expense of the capital used gives a dollar value.

Economic Value Added (EVA) Education and Training

Economic Value Added (EVA), registered trademark of Stern Stewart & Co. , is a performance metric used to measure the economic profit of a company.

Economic Value Added (EVA) Key Terms

When sharing financial data about your company, you want to present it in the best light but also be as accurate as possible. Some companies prefer to use an economic value added analysis when measuring their operating performance.

Economic Value Added - Wikipedia, the free encyclopedia

In corporate finance, Economic Value Added (EVA), is an estimate of a firm's economic profit – being the value created in excess of the required return of the ...

Economic Value Added (EVA) Definition | Investopedia

(Also referred to as "economic profit".) The formula for calculating EVA is as follows: = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

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Economic Value Added (EVA)

The Economic Value Added (EVA) is a measure of surplus value created on an ... It is closest in both theory and construct to the net present value of a project in ...

Economic Value Added (EVA) Definition & Example | Investing ...

Economic value added (EVA) is an internal management performance measure that compares net operating profit to total cost of capital. Stern Stewart & Co. is ...

What Is Economic Value Added? |

Mar 13, 2012 ... Longer answer: Unless you're really into math, Economic Value Added (EVA, trademarked by Stern Stewart) can be complicated to calculate.

Economic Value Added - AccountingTools

Economic Value Added Calculation | Formula | Example.

Economic value added versus profit-based measures of ... - ACCA

Economic Value Added – or EVATM – is a performance measurement system that aims to overcome these two weaknesses. EVATM was developed by the US  ...

Summary and Calculation of Economic Value Added (EVA). Abstract

Economic Value Added (EVA) is a financial performance method to calculate the true economic profit of a corporation. EVA can be calculated as net operating ...

Economic Value Added - Financial Dictionary - The Free Dictionary

A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% ...

Economic Value Added (EVA) Basics

Economic Value Added (EVA) is a registered trademark of Stern Stewart & Co., so other companies may refer to this as "economic profit" to avoid trademark issues. The economic value added definition refers to a performance metric that measures the true economic profit of a company, which clearly communicates a shareholder’s investment value. Its basic premise is that a business must include operating costs and capital costs for a report of true profit. In the 1990s, large corporations sought better measures for internal wealth creation performance, so they turned to the EVA formula.

Many believe EVA is the most successful performance metric to find true economic profit. A strong financial theory and consistent valuation principles make it difficult to dismiss. Moreover, economic value added analysis is able to measure and track a company’s economic position over time, which reveals shifts in a company’s economic value. Will the economic value added model benefit your company? Take a look at these economic value added (EVA) basics:

1. Economic value added calculations need adjustments.

2. Long-term perspectives contribute to economic value added advantages.

3. Economic value added analysis yields results.

Economic value added formula and explanation

The economic value added formula is: EBIT (Earnings Before Interest and Taxes) - Interest = Net Income - Cost of Equity Capital = EVA, and it appears to be a simple formula. But when people begins to implement the formula, they realize there are adjustments that need to happen. The Stern Stewart firm does not reveal all the nuances of their trademark formula to the public.

Economic value added advantages improve business units

Economic value analysis evaluates performance over time, which helps businesses determine which areas need increased asset flow to generate a positive return and increase shareholder value. The ability to focus on different divisions within a business helps build a strategic business unit. If profits are up, EVA increases and vice versa. Therefore, this metric pinpoints areas where financial performance is low, and you know exactly where to make corrections.

Economic value added analysis increases long-term profitability

Three foundational ideas support EVA's formula: cash flow is a reliable value, some expenses are long-term investments, and a profitable company yields a return for shareholders. By using the information EVA provides, managers and shareholders receive productive information to help increase long-term profitability in a business unit.

  • Due to the intricate nature of the EVA calculations and applications, consider consulting with a specialist before implementing this metric.