Which financial performance metric calculates the net operating profit of a business after deducting the dollar cost of capital employed?
AMarket Value Added (MVA)
BEconomic Value Added (EVA)
CReturn on Equity (ROE)
DNet Profit Margin
Explanation
• Economic Value Added (EVA) measures true economic profit generated by a firm: $text{EVA} = text{NOPAT} – (text{Capital Employed} times text{WACC})$.
• NOPAT represents Net Operating Profit After Taxes.
• EVA measures whether a business generates returns in excess of its total cost of debt and equity capital.
Exam Relevance
- Topic: Financial Statement Analysis
- Subtopic: Value Metrics
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