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EVA

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Is Economics Value added (EVA) an improvement over Return on Investment (ROI), Return on Equity (ROE), or Earnings per Share (EPS)?

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Solution Summary

EVA is essentially a measure to ascertain how much more value a company has added during the course of the year.

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EVA is essentially a measure to ascertain how much more value a company has added during the course of the year. To calculate EVA, the opportunity cost of the capital invested in the firm is deducted from after tax or net earnings. . It is always expressed in dollar terms.

In my opinion, EVA is an improvement over all the three measures: ROI, ROE as well as EPS.
EVA's popularity stems from the fact that this is the operating measure that truly drives shareholder wealth, which is the difference between what the capital investors put into a business and the value they could get by selling their claims. EVA will capture the fact that profit is growing but not growing enough to compensate for the rise in capital invested. Other performance measures, such as earnings per share, often fall short in providing such insight.
(Source: http://www.idgcapitalgroup.com/G&M_Article.htm)

Please visit the link below to ascertain the improvement provided by EVA over other measures:
EVA vs. traditional performance measures:

http://www.5paisa.com/scho/ch09.html

the matter from the above ...

Solution provided by:
Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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