Difference between revisions of "Economic Value Added"
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| − | [[Economic Value Added]] (also known by its acronym, [[EVA]]; hereinafter, ''EVA'') is a method used to measure a firm's true profitability. ''EVA'' is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive | + | [[Economic Value Added]] (also known by its acronym, [[EVA]]; hereinafter, ''EVA'') is a method used to measure a firm's true profitability. ''EVA'' is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive ''EVA'', its management has created value for its shareholders. If the EVA is negative, management has destroyed shareholder value. |
==Definitions== | ==Definitions== | ||
According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | According to [[Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition)]], | ||
| − | :[[Economic Value Added]] ([[Economic Value Added|EVA]]). A method used to measure a firm's true profitability. | + | :[[Economic Value Added]] ([[Economic Value Added|EVA]]). A method used to measure a firm's true profitability. ''EVA'' is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive ''EVA'', its management has created value for its shareholders. If the EVA is negative, management has destroyed shareholder value. |
According to [[Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition)]], | According to [[Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition)]], | ||
| − | :[[Economic Value Added]] ( | + | :[[Economic Value Added]] (''EVA''). Excess of [[NOPAT]] over capital costs. |
==Related concepts== | ==Related concepts== | ||
Revision as of 18:33, 1 November 2019
Economic Value Added (also known by its acronym, EVA; hereinafter, EVA) is a method used to measure a firm's true profitability. EVA is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive EVA, its management has created value for its shareholders. If the EVA is negative, management has destroyed shareholder value.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Economic Value Added (EVA). A method used to measure a firm's true profitability. EVA is found by taking the firm's after-tax operating profit and subtracting the annual cost of all the capital a firm uses. If the firm generates a positive EVA, its management has created value for its shareholders. If the EVA is negative, management has destroyed shareholder value.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Economic Value Added (EVA). Excess of NOPAT over capital costs.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
