For the calculation of EVA, current liabilities are deducted from total average assets for what reason?
A) Because liabilities are not included in assets, and so they should be deducted.
B) Because the current liabilities are due within a one year period.
C) Because it is necessary in order to calculate the equity of the company.
D) Because the funds needed to pay the current liabilities will not be available to generate income in the long run.

Question

Quizplus · Accepted Answer

The reason for deducting current liabilities from total average assets when calculating EVA is that the funds needed to pay these liabilities will not be available to generate income in the long run. EVA is a measure of the true profitability of a company, and current liabilities represent funds that will eventually need to be paid out, reducing the amount of funds available for generating future profits. Therefore, it is appropriate to deduct current liabilities from total average assets when calculating EVA.

For the Calculation of EVA, Current Liabilities Are Deducted from Total