The Economic Value Added (EVA) Model:
A) is defined the multiple of price-to-cash flow (P/CF).
B) is a model which ignores residual cash flow.
C) is a technique that focuses on a firm's excess between its actual return on capital and its WACC to determine if shareholders are rewarded.
D) is a model where a negative amount means that shareholders are being rewarded.

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. It focuses on the surplus (or deficit) generated over the cost of capital (WACC - Weighted Average Cost of Capital), thereby assessing if the company is generating value beyond its capital costs.