Economic Value Added

Published 01 Jan 1998
Reference 4667
Industry Accounting
Region Global
Summary

Economic Value Added (EVA) measures the difference between the return on a company’s capital and the cost of that capital. A positive EVA indicates that value has been created for shareholders; a negative EVA signifies value destruction.

Teaching objectives

The purpose of this note is to discuss: Why EVA has generated so much attention lately? How EVA is calculated? What are the most common accounting adjustments made by EVA practitioners? The application of EVA to divisional performance measurement.