Why Do Investors See the EVA Calculation as Important?
As briefly mentioned, the fundamental use of the Economic Value Added calculation is to indicate to the investor if the company appears to be “adding value” to the shareholders or if they are deemed to be “destroying value”. This is obviously a key calculation, but it must be noted that there are a few challenges with EVA which are discussed below. What Are the Key Problems with Economic Value Added Analysis of a company? Three possible key problems with the EVA calculation are the following: • Investors & industry place too much emphasis on the EVA calculation. The investor must seek to carry out other ratio analysis to gain a more in-depth understanding of the company. • Investors must understand that EVA gives an absolute value and is not a ratio which can be easily compared to other companies. For example an Economic Value Added of US$ 10 million for a 10,000 person multinational would be viewed very differently to an EVA of US$ 10 million created by a 2 person organization. • Inve
