Understanding Economic Value Added
Posted: 16 Aug 2006
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.
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