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Economic Value Added
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EVA is a way of measuring a firm's profitability. EVA is NOPAT minus a charge for all capital invested in the business (Byrne 1). A more intuitive way to think of EVA is as the difference between a firms NOPAT and its total cost of capital (K .... Middle of Term Paper
... his Harvard Business Review article, "EVA is based on something we have known for a long time: What we call profits, the money left to service equity, is not profit at all. Until a business returns a profit that is greater than its cost of capital, it operates at a loss. Never mind that it pays taxes if it had a genuine profit. The enterprise still returns less to the economy than it devours in resources….Until then it does not create wealth but destroys it" (Ehrbar 2). EVA is a measure of wealth creation or destruction after all costs are capitalized.
Companies use EVA as a measure of corporate performance, as an incentive syst ... |
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