Economic value added

Others 288 views 3 replies

Please clarify what is the right approach for EVA

Is it EBIT(1-tax) or EBIT(1-tax)+ Interes(net of tax)

Replies (3)

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".)

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

Rightly said by Mr. Amit Kanuga,

 EVA = NOPAT - Cost of Capital.

 But it seems your query was regading the formula of NOPAT,

The Correct Formula for NOPAT is either of the following

  • EBIT(1-T)
  • PAT + Interest (1-T)

And  for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.

Originally posted by : Saliq Ansari
Rightly said by Mr. Amit Kanuga,

 EVA = NOPAT - Cost of Capital.

 But it seems your query was regading the formula of NOPAT,

The Correct Formula for NOPAT is either of the following


EBIT(1-T)
PAT + Interest (1-T)


And  for your second query about which one is a better approac, Any of the above tow methods of Calculation will give same answer.

Thanks for ur support for my answer

 

yes ur approach for the same is good one.


CCI Pro

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