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What does the economic value added ratio explain and shows for a company.
Economic value added is a measure of the financial condition of a company. It is the additional profit that the company has made over the cost that it has incurred. It provides the additional value that the company has made over its cost of capital. It is used as a measure for identifying the profitability of a project and thereafter deciding whether a project should be taken up by the company or not. Only a profitable project should be invested in and a loss incurring project should be rejected. It gives a clear picture about the operating profit of a firm and how much is this operating profit more than the cost of capital.
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