- Economic value added
corporate finance, Economic Value Added or EVA® is an estimate of true economic profit after making corrective adjustments to GAAPaccounting, including deducting the opportunity costof equity capital. GAAP is estimated to ignore US$300 billion in shareholder opportunity costs. EVA can be measured as Net Operating Profit After Taxes(or NOPAT) less the money cost of capital. Money cost of capital refers to the amount of money rather than the proportional rate (cost of capital). The amortization of goodwill or capitalization of brand advertising and other similar adjustments are the translations that occur to Economic Profit to make it EVA. The EVA is a registered trademarkby its developer, Stern Stewart & Co.
In the field of
corporate finance, economic values added is a way to determine the value created, above the required return, for the shareholders of a company.
The basic formula is:
: , called the
Return on Invested Capital(ROIC).
Shareholders of the company will receive a positive value added when the return from the capital employed in the business operations is greater than the cost of that capital; see Working capital management. Any value obtained by employees of the company or by product users is not included in the calculations.
Relationship to Market Value Added
market value added, or MVA, is the discounted sum of all future expected economic value added:
Note that MVA = NPV of company.
* EVA could be misleading as a wealth metric because it reflects momentary swings in the capital markets rather than inherent company performance.Fact|date=February 2008
* EVA is also shareholder-centric and hence of little relevance to the rest of the stake holders.Fact|date=February 2008
* EVA is identical to residual income, which was largely abandoned by US companies years ago (Keys, Azamhuzjaev, and Mackey, 2001).
Other measures of
Market value added
Total Shareholder Return
Free cash flow
Weighted average cost of capital
* [http://www.eva.com Economic Value Added] from Stern Stewart & Company
* [http://www.kellogg.northwestern.edu/faculty/korajczy/htm/vbm.htm A Reading List on EVA/Value Based Management] from Robert Korajczyk
* [http://www.evadimensions.com Economic Value Added] from EVA Dimensions LLC
* [http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/eva.html Economic Value Added (EVA)] , Prof.
* [http://www.valuatum.com/valuation/valuation_tutorial_tiedostot/frame.htm#slide0132.htm EVA valuation tutorial] from valuatum.com
* [http://www.investopedia.com/university/EVA/ Understanding Economic Value Added] , investopedia.com
* [http://www.investopedia.com/articles/fundamental/03/031203.asp All About EVA] , investopedia.com
* [http://www.uwasa.fi/~ts/eva/eva.html Economic Value Added: A simulation analysis of the trendy, owner-oriented management tool] , Timo Salmi and Ilkka Virtanen, 2001
*Apples & Oranges busıness sımulatıon by Celemı
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