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Economic value added (EVA) and weighted average cost of capital (WACC)
The big picture
The economic value added (EVA) is a method to express the financial performance of an organisation. It expresses the performance of an organisation as its profits minus the cost of financing the organisation’s activities. The idea is that value is created (added) when the profit exceeds the costs (see Figure 29.1). The concept of EVA was introduced by consulting firm Stern Stewart & Co (Stewart, 1990).
When to use it
The original purpose of EVA was to include two principles in management’s decision-making: (1) the objective of a company is to maximise ...
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