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Joseph E. Bachelder III Joseph E. Bachelder III

Economic Value Added (EVA) is a measure of a business enterprise’s economic performance based on what is added to that enterprise’s value by its operating earnings (net of tax) reduced by the enterprise’s “capital costs.” The concept of EVA was introduced in the 1980s by the management consulting firm of Stern Stewart & Co. That firm obtained a trademark for the term EVA and subsequently transferred it to Stern Value Management, Ltd. Today’s column discusses recent developments in EVA, how the EVA formula works and the use of EVA as a performance metric in executive incentive compensation plans.

 

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