day 18 EVA 2009 spring v2 - EconomicValueAdded Dr.JamesGong...

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Economic Value Added Dr. James Gong
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Agenda What is EVA  Why EVA Evolution of EVA What is so great about EVA (I) Adjust to earnings to EVA What is so great about EVA – more Limitation of EVA
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EVA = Operating Profits - Capital  Charge EVA = Operating Profits - (Cost of  Capital)*Capital EVA = (Return on Capital - Cost of  Capital)*Capital  What is EVA
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Limitations of earnings Why EVA
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Is EVA a new concept?  GE used “residual income” back in 1955. concept again in 1980s History of EVA
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EVA routinely makes the top business press Everyone talks about it Every consulting firm pushes their version What’s the Big Deal with EVA
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Economic profits Residual income Other similar concepts Cash flow value added Other Names for EVA
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EVA recognizes capital has a cost Isn’t this obvious? Why would managers get this wrong? Is equity capital free?
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This note was uploaded on 11/08/2011 for the course ACCY 301 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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day 18 EVA 2009 spring v2 - EconomicValueAdded Dr.JamesGong...

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