Understanding Economic Value Added

Posted: 16 Aug 2006

See all articles by Mihir A. Desai

Mihir A. Desai

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Abstract

This note explores the concept of Economic Value Added (EVA) and its practical applications as a management control system for performance measurement and incentive compensation. The note explains how EVA is measured and explores some of the adjustments to financial statements that are required to measure EVA. The note provides a fully worked example of a firm's measurement of its EVA, both before and after adjustments to its financial statements. Several types of EVA bonus schemes are described. Both the benefits and limitations of EVA are discussed in the note.

Suggested Citation

Desai, Mihir A., Understanding Economic Value Added. HBS Publishing Case No.: 9-206-016. Available at SSRN: https://ssrn.com/abstract=924645

Mihir A. Desai (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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