Chapter-7

Understanding Economic Value Added (EVA)

EVA is the incremental difference in the rate of return (RoR) over a company's cost of capital.
Essentially, it is used to measure the value a company generates from funds invested in it. If a
company's EVA is negative, it means the company is not generating value from the funds
invested into the business. Conversely, a positive EVA shows a company is producing value from
the funds invested in it.
Economic value added (EVA) is a measure of a company's financial performance based on the
residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for
taxes on a cash basis.
The economic value added (EVA) is the amount that remains in a business when it has covered
all its expenses and the estimated minimum profitability. It is used as a financial performance
method to calculate the actual economic profit a company earns.

What Is Return on Investment (ROI)?

Return on investment (ROI) is a performance measure used to evaluate the efficiency or
profitability of an investment or compare the efficiency of a number of different investments.
Return on investment (ROI) is a measure of the profit earned from an investment relative to the
amount of money invested. It is generally expressed as a percentage and is typically used to
compare different investments or to compare the efficiency of an investment over time.
ROI is generally defined as the ratio of net profit over the total cost of the investment.
ROI is most useful to your business goals when it refers to something concrete and measurable,
to identify your investment's gains and financial returns. Analyzing investments in terms of
monetary cost is the most popular method because it’s the easiest to quantify, although it’s
also possible to calculate ROI using time as an investment.

As a manager, how do you measure assets employed in your

organization?