Which of the following statements is not true about EVA?
A) EVA is the after-tax operating profit minus the annual cost of capital
B) A positive EVA means the company is creating wealth from its capital
C) Employees can improve EVA directly in three different ways
D) Companies find it easy to use EVA because the average cost of capital is a weighted average

Question

Quizplus · Accepted Answer

EVA (Economic Value Added) is a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. While it's true that EVA is the after-tax operating profit minus the annual cost of capital, and a positive EVA indicates wealth creation, and employees can impact EVA in various ways, the statement that companies find EVA easy to use because the average cost of capital is a weighted average is misleading. In reality, calculating EVA and especially the cost of capital (which indeed is a weighted average of debt and equity costs) can be complex and challenging for companies, requiring detailed financial data and analysis.

Which of the Following Statements Is Not True About EVA