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Determine the meaning of Economic Value Added and Use the concept of Economic value added to...

Determine the meaning of Economic Value Added and Use the concept of Economic value added to show the best way to create value in a business. Put economic theories to work in analyzing a specific and practical set of problems that a business may be facing as it builds its strategy?

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Answer #2

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis).

The formula for calculating EVA is as follows:

EVA = Net Operating Profit after Taxes - (Capital × Cost of Capital)

Both the performance measure has different use to identify the financial performance of the company. Since EVA uses operating profit to determine the performance of the company. So when comparing both measure, EVA is better measure than MVA.

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