Economic Value Added (EVA) ... or Economic Value Creation
EVA is a concept consistent with CFROI: It is the translation of CFROI from % to MEUR.
See the Financial Dimensions of Value Creation.
Formula
(1) GTA = Gross Tangible Assets
(2) GIA = Gross Intangible Assets
(3) WC = Working Capital
(4) WACC = Weighted Average Cost of Capital
CFROI versus EVA
- CFROI and EVA are indicators combining both
- P&L (Recurrent EBITDA) performance
- Assets Management performance
- CFROI provides good guidance for resources allocations: priority given to "Value Creating Business".
- In a context of growth, EVA is a more relevant indicator than CFROI. When a business is in a "Value Creation Zone", priority is to grow EVA rather than increase CFROI. The best option is to do both.