By: Level13
Economic Value Added (EVA) is a frequently used ratio by investors from developed market economies. The basic idea of this formula is based on the foundation that the main goal of a company is to maximize profit. However it does not mean book profit (the difference between revenues and costs) but economical profit.
The difference between economical and book profit is that economical profit is the difference between revenues and economical costs, which are book costs and opportunity costs. Opportunity costs are presented by the amount of money lost by not putting available sources (like capital, labor, etc.) to the best alternative use. This relation is possible to describe in following way: Read more...