ABSTRACT
In this chapter, the authors discuss the Economic Value Added (EVA) transformation that offers two advantages. One is to separate business-operation results from investment decisions and to observe if, despite a large investment, the firm is actually making profits over any given period. The second one is to offer a more economically friendly presentation. The EVA methodology requires a set of judgment calls by the entrepreneur. For instance, expenditure in a marketing campaign can either be considered an operating cost of the firm or an investment that is expected to increase profits in the future. For outsiders, such as financial analysts, making an “EVA evaluation” of a firm can offer a clearer assessment of the firm’s situation and allow one to decide if stock prices are accurately capturing the “fundamentals” of the firm depending upon one’s assessment of the market value added.
