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Bubblyparabola Bubblyparabola
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4 months ago
What is EVA and how is it calculated?
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Managerial Accounting


Edition: 4th
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vlad8919vlad8919
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Economic Value Added (EVA) is a performance measure that is a variation of residual income that measures "economic profit." The idea behind this measure is that to create value, a firm must earn enough income both to cover the cost of invested capital and to provide additional income to shareholders. It is calculated by first calculating net operating profit (operating income minus income taxes), calculating invested capital (total assets minus current liabilities), and calculating the weighted-average cost of capital (combined rate of return required by all capital projects). EVA is then calculated by subtracting invested capital times weighted average cost of capital from net operating profit.

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