Use of EVA to make decisions
 
Drivers are a fundamental performance metric which takes the most basic EVA/Economic Profit calculation and allows operational decisions to be made: EVA= NOPAT (net operating profit after tax) - Capital Charge
 

Breaking down operational decisions using a driver analysis provides tools which can be used to

  • Analyse operational decisions in terms of tradeoffs between income statement and balance sheet effects
  • To evaluate and identify areas needing improvement, and
  • To benchmark business fundamentals among peer companies for the purpose of identifying best practices. 

 

The following examples provide a quick insight into a single period decision evaluation.

Example 1
Example 2