Liviu M. Matac1,2
1Academy of Economic Studies, Bucharest, Romania
2Carol Davila University, Bucharest, Romania
Corresponding author, e-mail: email@example.com
Running title: Economic added value and performance measurement
Keywords: economic added value, performance measurement
J Appl Econ Stat. 2017; 1(1): 37-45; Date of submission: 2017-01-29, Date of acceptance: 2017-03-26
Economic added value is an estimate of the true economic profit, or the amount of money which exceed the minimum amount accepted by investors. In other words, from the point of view of the shareholders, the economic added value represents the operational profit that exceeds the opportunity cost of the capital invested by them.
The economic added value indicator is not a new concept. It is nothing more than a variation of the residual profit mentioned by Alfred Marshall in 1890, with some adjustments to how profits and capital are calculated. Marshal defined the economic profit as the total net earnings deducting interest on invested capital calculated at the current rate. Added economic value has the advantage that it is conceptually simple and easy to explain to managers who do not have financial knowledge, can be calculated for the whole company, a business unit or a single office or assembly line and shows the importance of the funding structure used by each Company.
Often EVA is seen as a simple measure that faithfully plays the true picture of creating wealth for shareholders. Statistical reports show that EVA deployment is triggering an increase in company shares and causes managers to act as if they were shareholders.