Economic value added (EVA) is a measure of a company’s profitability that takes into account the cost of capital. It is calculated as follows:

EVA = Net operating profit after tax – (Weighted average cost of capital * Total invested capital)

ROI, ROE, and EPS are also measures of profitability, but they do not take into account the cost of capital. ROI is calculated as follows:

ROI = Net operating profit after tax / Total assets

ROE is calculated as follows:

ROE = Net operating profit after tax / Shareholders’ equity

EPS is calculated as follows:

EPS = Net income / Number of shares outstanding

EVA is a more comprehensive measure of profitability than ROI, ROE, and EPS because it takes into account the cost of capital. This means that EVA can be used to compare the profitability of companies that have different levels of debt and equity.

For example, consider two companies, Company A and Company B. Company A has a higher ROI than Company B, but Company B has a lower cost of capital. This means that EVA could be higher for Company B than for Company A.

EVA can also be used to track the performance of a company over time. This is because EVA is not affected by changes in the capital structure of the company. For example, if a company issues new debt, this will increase its ROI and ROE, but it will not affect its EVA.

Overall, EVA is a more comprehensive and informative measure of profitability than ROI, ROE, and EPS. It can be used to compare the profitability of companies with different levels of debt and equity, and it can be used to track the performance of a company over time.

Here are some of the specific ways in which EVA improves our knowledge of performance over ROI, ROE, and EPS:

• EVA takes into account the cost of capital. This means that it is a more accurate measure of the true profitability of a company.
• EVA is not affected by changes in the capital structure of the company. This means that it can be used to track the performance of a company over time, regardless of how the company finances its operations.
• EVA can be used to compare the profitability of companies with different levels of debt and equity. This is because EVA is not affected by the amount of debt that a company has.
• EVA can be used to identify areas where a company can improve its profitability. This is because EVA can be broken down into its components, such as net operating profit after tax and the cost of capital.

Overall, EVA is a more comprehensive and informative measure of profitability than ROI, ROE, and EPS. It can be used to improve our understanding of how a company is performing and to identify areas where it can improve its profitability.