Page 121 - MAC4861_2 Costing class slides part 2
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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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