Economic Value Added (EVA) Accounting Practice

Although Economic Value Added (EVA) is not a new concept in economics and financial theory and is based on the 19th century concept of "economic profit," it has only been widely adopted recently by business firms as an accounting practice. In this paper we shall describe what EVA is, and look at its pros and cons from the point-of-view of the company adopting the practice and the investors. We shall also discuss how EVA differs from some other emerging accounting practices and the major issues relating to EVA as compared to other commonly used accounting principles. Finally, the possible problems and opportunities that a company adopting EVA principles can face shall be examined.

What is Economic Value Added (EVA)?

Economic Value Added (EVA) is the after-tax cash flow generated by a business minus the cost of the capital it has invested to generate that...
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