Question

econimic value added (eva) is another technique that companies cinsider. discuss why eva may not be regulary used by companies

Answer 1

Economic value added (EVA) is primarily focused on profitability. However, in today’s business environment, profitability is not the top most factor to determine a firm’s performance. Nowadays, wealth maximization has gain more importance. Many industrialists consider wealth maximization above profitability. Because it enhances the stockholders’ or investors’ confidence ensuring a long term growth. A company may have high profits but still weak in financial performance. This is because it has high amount of debts and low EPS. But wealth maximization considers these facts. Thus Economic value added (EVA) should not be used always by a company.

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