Economic Value Added (EVA): A new flexible tool for measuring corporate performance

With increased competition and greater awareness among investors, new and innovative ways of measuring corporate performance are being developed. New tools/techniques provide flexibility to managers in their functions, be it in terms of operational aspects or evaluation parameters. Economic Value Added (EVA) is one such innovation. Besides the measures like Return on Equity (ROE), Return on Net Worth RONW), Return on Capital Employed (ROCE) and Earnings per Share (EPS), EVA is a new measure available to the corporate managers.

This paper describes and compares the EVA with other measures. Apart from this, taking the real financial data of a company, the paper shows how EVA calculations can be done to demonstrate whether the company is adding to shareholder value by generating profits over and above the capital charge. EVA is not a tool to create wealth. Yet, it encourages managers to think like owners and, in the process, may impel them to strive for better performance.