BNET Business Dictionary
Business Definition for: Economic Value Added
- a way of judging financial performance by measuring the amount by which the earnings of a project, an operation, or a corporation exceed or fall short of the total amount of capital that was originally invested by its owners.
Example: EVA is conceptually simple: from net operating profit, subtract an appropriate charge for the opportunity cost of all capital invested in an enterpriseâ€"the amount that could have been invested elsewhere. It is calculated using this formula:Net operating profit less applicable taxes â€" Cost of capital = EVAIf a company is considering building a new plant, and its total weighted cost over ten years is $80 million, while the expected annual incremental return on the new operation is $10 million, or $100 million over ten years, then the plant's EVA would be positive, in this case $20 million:$100 million â€" $80 million = $20 millionAn alternative but more complex formula for EVA is:(% Return on invested capital â€" % Cost of capital) × Original capital invested = EVAEVA is frequently linked with shareholder value analysis, and an objective of EVA is to determine which business units best utilize their assets to generate returns and maximize shareholder value; it can be used to assess a company, a business unit, a single plant, office, or even an assembly line. This same technique is equally helpful in evaluating new business opportunities.
- Abbr. EVA
Additional Resources
- Quality in 3D: EVA, CVA, and employees. (economic value-added, customer value-added) (From FEI)
- The quality program driving AT&T in the 1990s focuses on economic value-added EVA, customer value-added CVA and employee satisfaction. EVA is used by the firm not only as a measure of shareholder value, but also as a measure of major business deciThe quality program driving AT&T in the 1990s focuses...
- Research articles 1993-07-01
- Economic Value Added (EVA)
- Economic Value Added EVA is the monetary value of an entity at the end of a time period minus the monetary value of that same entity at the beginning of that time period. EVA is a tool that measures how much more valuable a company has become during a given...
- White papers 2003-01-01
- Assessing Economic Value Added
- Economic value added EVA expresses a company's true profit, once taxes and the cost of supporting capital have been taken into account. It helps to identify whether a business or project is earning more or less than the capital originally invested in it.If it's earning more, it's adding value—which is...
- Articles 2007-10-16
- Alternative Valuation Techniques: Economic Value Added (EVA)
- Economic Value Added EVA analysis is an analytical tool towards computation of accrued shareholder value in the organization. It measures the surplus value created by an investment. The computation of this value is imperative in optimizing an organization's financial strategy within the strategic management framework. The Discounted Cash Flow DCF...
- Presentations 2003-01-01
- Free Cash Flow (FCF), Economic Value Added (EVA ), And Net Present Value(NPV): A Reconciliation Of Variations Of Discounted-Cash-Flow (DCF) Valuation
- Cash flows consist of the cash coming into the organization through the activities of operations and financing. It also contains the cash going out of the organization through the investing activity. Economic Value Added EVA is the monetary value of an entity at the end of a time period minus...
- White papers 2000-06-01
- Economic Value Added (EVA)
- It is imperative for an organization to compute its value. The valuation of the firm enables it to know exactly how much is it worth. This helps in future planning and resource allocation. The Economic Value Added EVA is a tool for assessing the value of the firm. It is...
- White papers 2003-01-01
- On The Development Of A Combined Activity-Based Costing (ABC) And Economic Value Added (EVA) System For Small Business
- Activity Based Costing ABC system traces cost incurred to the activities involved therein. It explores the relationship between activities and costs. ABC refines costing systems by focusing on individual activities as the fundamental cost object. Such a costing method improves cost measurement by organizing information around activities. Economic Value Added...
- White papers 2003-01-01
- Economic Value Added
- From the executive summary: ‘Economic value added EVA measures a corporation's true economic profit. The objective of EVA is to understand which business units best leverage their assets to generate returns and maximize shareholder value'. The paper traces the history of EVA and examines its relevance and importance in an...
- White papers 2000-10-30
- Getting More Value For Your Stockholders Through Economic Value Added Measures
- This article defines that Economic Value Added EVA is an indicator of the market value of service center's owner's equity, a measure especially important to closely held companies, which do not have the benefit of a published stock price. For publicly traded companies, EVA correlates very closely with stock price....
- White papers 2003-01-01
- Integrating Activity-Based Costing And Economic Value Added In Manufacturing
- Activity Based Costing ABC system traces cost incurred to the activities involved therein. It explores the relationship between activities and costs. ABC refines costing systems by focusing on individual activities as the fundamental cost object. It assigns costs to cost objects based on the activities undertaken to produce each product...
- White papers 2003-01-01
- Economic Value Added (EVA)
- Economic Value Added EVA is the monetary value of an entity at the end of a time period minus the monetary value of that same entity at the beginning of that time period. EVA is a tool that measures how much more valuable a company has become during a given...
- White papers 2003-01-01
- Introduction To Economic Value Added
- Economic Value Added EVA is a financial tool, which signifies the gain, or loss that remains after assessing a charge for the cost for all types of capital employed in an organization. EVA helps in ascertaining the ?value? of the organization in a given time period. The paper examines the...
- Presentations 2003-01-01
- EVA changes how Detroit measures its executives - economic value-added
- Economic value-added is forcing managers to focus on improving shareholder value if they want to bring home the big bucks. Last year Ford's shareholder value improved 57%. GM's stock hit its highest price in history. Lucky break thanks to a surging stock market? Not according to those who...
- Research articles 1998-02-01
- Economic Value Added
- Economic Value Added EVA is a tool to measure shareholder's value in an organization. It helps in charting out avenues for strategic decision making in the organization. EVA aligns both shareholder's and management's focus towards business strategy. The paper traces the history of EVA and examines the EVA approach towards...
- Presentations 2002-04-01
- An Integrated Activity-Based Costing And Economic Value Added System As An Engineering Management Tool For Manufacturers
- From the executive summary: ‘The paper presents a cost and performance measurement system that integrates the Activity Based Costing ABC method and the Economic Value Added EVA financial performance measure tool. This proposed ABC and EVA system is then explored as an engineering management tool that helps to successfully manage...
- White papers 2003-01-01
- The Optimal And Actual Use Of Economic Value Added In Incentive Compensation
- From the executive summary: ‘Executive compensation is increasingly sensitive to stock returns. However, even abnormal stock returns are highly volatile, and an optimal contract shields the agent from as much variability as possible. It is not surprising then that non-stock performance measures, such as earnings and other accounting measures are...
- White papers 2001-06-11
- Financial Tools Of Analysis: Economic Value Added (EVA)
- Economic Value Added EVA is a financial tool, which signifies the gain, or loss that remains after assessing a charge for the cost for all types of capital employed in an organization. EVA helps in ascertaining the ‘value' of the organization in a given time period. The paper discusses the...
- White papers 2003-01-01
- Adding fizz to balance sheet: Fla. system turns to Coke's capital management strategy.(Adventist Health System in Florida uses 'economic value added' strategy)(Scared of the Bull)(Cover Story)
- Adventist Health System (Winter Park, FL) is among the healthcare organizations that are using more forward-looking financial management strategies. It has implemented an 'economic value added' EVA strategy similar to Coca-Cola's. EVA calculates the level of capital an organization can support without losing value. Under the formula, profits before interest...
- Research articles 1997-03-10
- Capitalizing On Economic Value Added
- Some analysts have called economic value added EVA the key to creating corporate wealth. The metric, which measures a company's net operating profit after taxes, focuses organizations on earning a target rate of return over and above the cost of capital. EVA is a measurement tool designed to strengthen companies'...
- White papers 2000-07-01
- Using The Integrated Activity-Based Costing And Economic Value Added Information System For Project Management
- This paper examines the use of the Integrated ABC-and-EVA Information System for the management of new technology projects. The advantages of integrating the Activity-Based Costing system with the Economic Value Added financial performance measure and the
- White papers 2001-08-05
