Page 18 - Manac Costing Test 2 class slides - 3. Performance Measurement

PERFORMANCE MEASUREMENT

Economic Value Added (EVA ⁽™⁾)

• EVA extends the traditional residual income measure by
incorporating adjustments for distortions introduced by accounting

standards.

• EVA is a financial performance measure that comes closer than any

other to capturing the true economic profit of an enterprise – it
focuses on the maximization of shareholder wealth and the long
term net present value.

Formula:

EVA = Adjusted NOPAT– (Adjusted controllable investment x divisional
WACC)

A positive EVA indicates that wealth has been created.

A negative EVA indicates that wealth has been destroyed.

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