Answers to Questions
1. What is Economic Value Added (EVA) and what are the advantages and disadvantages of using EVA as a measure of a company’s performance?
The basis for the financial performance measurement tool called Economic Value Added (EVA) is that any capital brought into a company must create value for its shareholders. Very simply put, if the after-tax net operating profit of a company (or NOPAT), less the capital used to generate that profit is positive or greater than zero, then the company has generated true economic profit for its investors. In mathematical terms, this relationship is shown as: