What is EVA?
EVA, short for Economic Value Added, is a measure of a company’s economic performance. It gives a perfect look at a business’ financial performance and health, and whether or not a company is actually creating wealth for shareholders.
EVA measures the total economic profile of companies by taking into account the required return of stakeholders. It provides you with a clear idea of whether a particular stock is performing better or worse than other comparable stocks. In essence, it allows you to compare the economic return of investment options that carry similar risk levels.
How is EVA better than common accounting reports?
The common practice is to evaluate a company’s profits from an accounting perspective. While those financial statements allow investors to see the logic behind a company’s value, it doesn’t indicate if a stock is actually creating wealth for its shareholders!
EVA considers factors that are not even included in common accounting techniques, even though they have a very real economic impact on a company. StockPointer allows you to see right through superficially good-looking accounting reports to avoid precarious, potentially disastrous investments. For instance, EVA reports would have allowed Enron investors to see how its accounting was hiding its grim future.