EVA is a way of measuring a firm's profitability. EVA is NOPAT minus a charge for all capital invested in the business (Byrne 1). A more intuitive way to think of EVA is as the difference between a firms NOPAT and its total cost of capital (Kramer & Pushner 40). Stern Staurt's numerical definition of EVA is calculated for any year by multiplying a firm's economic book value of capital © at the beginning of the year by the spread between its return on capital ® and its cost of capital (K): EVA=(Rt-Kt)*Ct-1 (Kramer &Pushner 41). EVA is a notion of residual income (Ehrbar Xi). Investors demand a rate of return proportional to the amount of risk incurred. Operating profits determine residual income by plotting them against the required rate of return, a product of both debt and equity. EVA takes int....

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Number Of Words: 1713

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