economic value added

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Economic value added (EVA)

A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line, if investors would usually require 14% on capital invested for this level of risk, the division destroyed shareholder value by the EVA metric. This Stern-Stewart has a trade mark on this term.

Economic Value Added

A company's after-tax earnings less its opportunity cost. The economic value-added measure is a metric of how well it has performed over a given period of time compared to how it could have performed.

economic value added (EVA)

a measure of a firm's overall profit (loss) position when allowance is made for the OPPORTUNITY/ECONOMIC COSTS of the firm's capital (that is, the revenues the firm's assets could have earned in some alternative use). Whereas accounting PROFIT = SALES REVENUE less accounting COSTS (see PROFIT AND LOSS ACCOUNT), EVA = sales revenue less accounting cost less opportunity economic costs.

To illustrate: assume sales revenue is £1,000,000 and accounting cost is £900,000; on conventional criteria the firm thus makes an accounting profit of £100,000. However, when allowance is made for the opportunity cost of the firm's assets if liquidated and redeployed in an alternative use the picture changes. If the firm's assets could have earned, say, £200,000 in some alternative activity (e.g. even putting the money on interest-bearing deposit with a bank) then the positive accounting profit is turned into an economic loss of £100,000. Thus, shareholders' wealth has been ‘destroyed’ rather than ‘created’.

However, whilst producing accurate accounting cost and profit data can be difficult, obtaining reliable economic cost and profit data can be even more problematic. For example, a high proportion of the investment in the firm's current activity may represent a ‘sunk’ cost with little prospect of recovery if liquidated, while there is a difficulty in identifying which are likely to be viable alternative activities where the firm's new investment might yield higher profit returns than currently being achieved.

References in classic literature ?
Farewell, dear Eva. Think of your little Rose-Leaf when among the flowers."
Long Eva watched their shining wings, and listened to the music of their voices as they flew singing home, and when at length the last little form had vanished among the clouds, she saw that all around her where the Elves had been, the fairest flowers had sprung up, and the lonely brook-side was a blooming garden.
Results of isothermal TGA of neat EVA and its nanocomposites at 300[degrees]C in nitrogen atmosphere are displayed in Fig.
The beneficiaries, who staged a brief protest in Warri, on Monday, alleged that Comrade Eva, who's their camp leader, has refused to pay them their monthly stipends amid all entreaties by stakeholders.
Aidan is due to wed Eva - actress Catherine Tyldesley, 33 - thinking she is pregnant, when she is not.
But with Aidan's lover Maria gatecrashing the proceedings to declare the wedding a sham, will Eva's vindictive plot work?
Mom Eva agreed and drove out to meet them in Venice Beach since Janine, who stars in 'Legally Blind,' still had a shoot.
The report firstly provides the EVA resin product overview along with its scope.
Eva, who goes by the name Natalie Eva Marie, got her start with WWE in 2013.
"What are you going to do with these?" Eva looked up, a fond smile on her lips.
When Will suddenly moves across the country, Eva concocts a plan to follow him.