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WHAT IS EVA?2

Most successful performance metric

Popularity is a result of able marketing and deployment by STERN STEWART, owner of the trademark

EVA is a measure of financial performance based on the context that all capital has a cost and that earning more than the cost of capital creates value for shareholders.

ECONOMIC VALUE ADDED:3

Registered trademark of Stern Stewart & Co. of New York City ( USA)

“QUEST OF VALUE”-Term EVA with a symbol TM as super script was used.

EVA is a trademark of Stern Stewart & Co. is a specific method of calculating economic profit.

Peter Drucker discussed EVA “MANAGING FOR RESULTS”

Concept was popular after Stern Stewart & Co. marketed it.

UNDERSTANDING EVA AND ITS COMPONENTS

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COMPONENTS OF EVA:5

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Measure of wealth a company has created for its investors

Cumulative measure of corporate performancePrimary objective of co.- Maximizing MVA

MVA = [(Shares outstanding x Stock price) + Market value of

preferred stock + Market value of debt] – Total capital

MARKET VALUE ADDED(MVA)

EVA V/S MVA7

ECONOMIC VALUE ADDED MARKET VALUE ADDED

Attempts to measure the true economic profit produced by a company

Diff between –current market value of company & capital contributed by investors.

Performance metric Wealth metric

Useful for investors-determine the company value

Improves the book value of the company shares

CONCLUSION8

We can definitely say that EVM has emerged as a powerful conceptual framework and is practically implemented in most of successful corporations across globe. Which incorporates balance sheet data into an adjusted income statement metric which works best for companies whose tangible assets (assets on the balance sheet) correlate with the market value of assets - as is often the case with mature industrial companies. 

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