ECONOMIC VALUE ADDED-[CPA notes and solutions]

[SIMPLIFIED STUDY GROUP : HOME OF SOLUTIONS]

This is the profit earned in excess of minimum returns required by contributors of capital, i.e. debt and equity. EVA concept is an extension of traditional residual income measured by incorporating adjustments to divisional performance introduced by GAAPs.

 

EVA = Divisional Profits +\- Accounting Adjustments – Cost of Capital

 

Since: Residual Income = Operating\Divisional Profit – Cost of Capital

 

Therefore; EVA = NOPAT but before Interest +\- Accounting Adjustments – Cost of Capital

 

                                   NOPAT = Profit After Tax but before Interest