Economic Value Added (EVA)

What separates EVA from other performance metrics ... is that it measures all of the costs of running a business-operating and financing (Stern Stewart and Co).

Information about Economic Value Added (EVA)

Economic Value Added (EVA) is a popular concept in finance - unlike other measures of returns it claims to capture the difference between the value of - fully-accounted - outputs and the value of - fully-accounted - inputs. EVA is the 'profit' calculation that takes the cost of capital, along with more commonly-noted costs, into account (Stewart, 1991).

EVA gained widespread recognition in the 1990s. Many multinational corporations such as AT&T, Coca-Cola and GE have used EVA to gauge their performance (Brigham and Houston, 1998). Similarly, investment analysts study company EVA along with Earning per Share (EPS) and Price-Parnings (P/E) ratios. EVA can be applied to capital budgeting, valuation, management control, and to incentive compensation (Stewart, 1991).

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