EVA: A better financial reporting tool

Economic Value Added (EVA) is a financial performance measure being adopted by many companies in corporate America. This new metric, trademarked by Stern Stewart and Co., is a profit measure based on the concept of true economic income which includes the cost of capital for all types of financing. E...

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Bibliographic Details
Published in:Pennsylvania CPA Journal 2000-10, Vol.71 (3), p.27
Main Author: Prober, Larry M
Format: Article
Language:English
Subjects:
Accounting
Advantages
Capital assets
Capital costs
Compensation plans
Corporate profits
Earnings
Economic value added
Equity
Financial reporting
Financing leases
Goodwill
Income
Inventory
LIFO
Materiality
Measurement
Net income
Operating leases
Profitability
Research & development expenditures
Taxes
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Description
Summary:Economic Value Added (EVA) is a financial performance measure being adopted by many companies in corporate America. This new metric, trademarked by Stern Stewart and Co., is a profit measure based on the concept of true economic income which includes the cost of capital for all types of financing. EVA provides a more comprehensive measure of profitability than traditional measures because it indicates how well a firm has performed in relation to the amount of capital employed. This paper summarizes the EVA concept of measuring profitability, the EVA calculation and the benefits of adopting an EVA framework.
ISSN:0746-1062