Economic Value Added (EVA)is:
A) The difference between the return on assets and the opportunity cost of capital times the capital base
B) ROA x ROE
C) A measure of the firm's abnormal return
D) Largest for high growth firms

Question

Quizplus · Accepted Answer

Economic Value Added (EVA) is a financial performance metric that calculates the difference between the return on assets (ROA) and the opportunity cost of capital times the capital base. It is a measure of the firm's true economic profit by subtracting the cost of the capital used in generating that profit. EVA is useful in determining the value of investments and projects for a company, and when used to evaluate managerial performance, it aligns the interests of managers with those of shareholders. EVA is not related to ROE, which calculates the profit made as a percentage of shareholder equity, and it is not necessarily largest for high growth firms, as it depends on the efficiency of capital usage.