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Economic Value Added (EVA) Statement - Research Paper Example
Author : evangelinekoelp
Finance & Accounting
Pages 3 (753 words)
Economic Value Added (EVA) Statement Name of Author Author’s Affiliation Author Note Author note with more information about affiliation, research grants, conflict of interest and how to contact Economic Value Added (EVA) Statement Introduction of Economic Value Added: In order to raise the value of shareholders, today most of the firms are focusing more on the importance of introducing new measures for improving the compensation and financial performance of the firm, thereby increasing the wealth of the shareholders…
EVA is one such performance measurement tool that captures the financial profit and shareholders wealth. “EVA subtracts the cost of capital from the net operating profits after tax (NOPAT) generated in the business. It is a measure of the residual income from the income statement after accounting for the cost of the balance sheet” (Economic Value Added, 2007). How can Economic Value Added (EVA) Statements be used to improve financial statement reporting, results, and success? EVA statements are formed on the basis of two financial statements-the balance sheet and the income statement. EVA Statements can be Used as a Valuable Tool to Improve the Financial Statements: With the correct prediction of economic profits every financial year, EVA statement shows how much value is additional to the capital. It helps to set the goals of business, incentives of management, and pay bonuses for better performances which cannot be obtained from the cash flows of financial statement. ...