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Essay / Research Paper Abstract
This 5-page paper touches on two economic factors --Economic Value Add and Market Value Add -- and determines how they fit into an accounting format. Bibliography lists 3 sources.
Page Count:
5 pages (~225 words per page)
File: D0_MTevamva.rtf
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Unformatted sample text from the term paper:
that determine how much cash is flowing in versus how much debt is being paid off. It is these tools that help keep balance sheets accurate and that provide a
useful guide for investors wishing to know how much money theyll realize for their investment. Other tools, however, are beginning to be
assessed as useful for measuring a corporations economic viability. These two tools are Economic Value Added and Market Value Added. Both of these concepts focus not solely on what is
currently in the bank or on the balance sheet, but also intangibles such as marketing opportunity costs and future earnings potential over capital expenditures today.
Economic Value Added is described by Stern Stewart as the "financial performance measure that comes closer than any other to capturing the true economic profit of an
enterprise" (Stern Stewart & Co., 1999). But boiled down to its basis, EVA is a companys net operating profit minus the charge for opportunity cost of all capital invested in
an enterprise (Stern Stewart & Co., 1999). In other words, when measuring financial performance, EVA allows a company to take into account all costs - including all capital costs, thereby
reflecting a more accurate statement of a companys health and wealth (Stern Stewart & Co., 1999). In most cases, "opportunity costs" are more of an economic term, rather than a
financial or accounting term. The EVA concept, however, helps integrate the idea of opportunity costs and makes it an important part of wealth determination.
The other benefit of EVA is that it is a tool that can be benchmarked - in other words corporations that set about trying to improve their EVA
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