Economic Value Added (EVA) - An Empirical Examination of New Approach for Wealth Creation by Indian Corporates

Abstract

EVA, an acronym for economic value added, is Stern Stewart&Company's version of a popular and significant concept called residual income. EVA or Economic Value Added is a concept, which emphasis that companies do not earn a true profit until all costs, including opportunity costs and cost of capital, have been recovered. Simply earning a profit or EPS is not sufficient for the value creation. If a firm is generating earning higher than cost of capital, then it is a wealth creator otherwise a wealth destroyer.This concept focuses on the creation of Economic value added and suggests how to minimize the uneconomical activities to increases the returns. However, some activities that do not increase shareholders value might be critical for customer's satisfaction or social responsibility. Focusing solely on shareholder's wealth might jeopardize a firm's reputation and profitability in the long run. Present research paper is a modest attempt to evaluate the shareholders value creation through EVA, discloser and reporting practices followed by larger India companies in different business segment' e. g. Infosys (IT), Hero Honda (Automobile), BHEL(Capital Goods), HUL, MARICO(FMCG)and Dr Reddy's (Pharma) are leading corporate in India.