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.