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The real profit of a company
- The real profit that is of interest to investors is the profit after deducting the capital costs. This profit
figure is often called Economic Value Added, EVA (or Economic Profit or Residual Income)
- An essential component of EVA is the Weighted Average Cost of Capital (WACC) determined with the costs of
both debt and equity.
- EVA is defined simply :
- Turnover (Sales)
- Operating expences (Wages, material, general exp., depr., taxes)
- Capital costs (WACC x invested capital)
Economic Value Added
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