Abstract
The concept of Economic Value Added (EVA) has got wide acceptance as the key indicator of performance ever since industry started shifting from the product-centric world of the past to the value-centric world of the future. Economic Value Added estimates a particular type of economic profit, which states that in order to earn genuine profits, it is not only necessary for a company to earn sufficient profit to cover the firm's operating costs, but also to cover the cost of capital. A positive EVA indicates that value has been created for shareholders by the company, and a negative EVA signifies that value has been destroyed by the firm during the period of operation. The article also suggests that capital charge is not the only deciding factor of EVA, better management of operating costs will also help the companies to contribute to positive EVA.
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