RESEARCH ON RELATIONSHIP BETWEEN EVA & EPS

Abstract

Economic Value Added (EVA) is a financial measurement tool that company can use to measure the financial performance of their unit. EVA determines if a business is earning more than its true cost of capital. EVA is an estimate of the true economic profit (not accounting profit). EVA is highly accurate because it includes the cost of debt financing and equity financing.

EVA is more than just performance measurement system, it is also marketed as a motivational, compensation-based management system that facilitates economic activity, and accountability at all levels in the firm.

EPS is one of the criteria for measuring the performance of a company. If EPS is increases, the possibility of a higher dividend paid by the company is also increases. However, it should be kept in mind that EPS of different companies may vary from company to company due to following of different practices followed by different companies regarding stock in trade, depreciation etc.

Economic Value Added (EVA) and one traditional performance measurement tool i.e. Earnings Per Share (EPS) to measure economic value and per share earnings of 5 pharmaceutical companies which are Sun pharmaceutical, Dr. reddy’s laboratories, cipla, cadila healthcare, lupin ltd.