Economic Value Added

ABOUT THIS CONTENT

Economic Value Added is a registered trademark of the consulting firm Stern and Stewart. It is promoted as a means for measuring performance and awarding compensation. It ties in very well with capital budgeting: the NPV of a project is the present value of its EVA. However, even for positive NPV projects, EVA can be negative in some years. If capital were measured by its economic value rather than its book value (a difficult task!), then EVA would equal NPV when a project was taken and would be positive (negative) later only if outcomes were better (worse) than expected.