Cockpit
Statements
Tax Treatment in EVA
In order to calculate NOPAT for EVA, one has to assess the impact of taxes. This can be accomplished by calculating actual taxes for the period under observation from paid taxes and changes in the tax positions on the balance sheet. It is important to calculate exactly what taxes are due for that period independent of when those taxes are actually paid. Very often this approach is too complicated for non-financial managers, in which case a flat tax rate may used. Tax adjustments focus operating management on operating issues, and defines EVA as a purely operating performance metric. If the tax situation changes, the tax rate is adjusted in advance.
Click here for more information about EVA Adjustments.
Click here for more information about calculating Cost of Capital.
Click here for more information about calculating Capital Charge.
Click here for the following section on EVA sub-metrics: the Value Driver Tree.
Click here for the final VBM section on value-based incentive compensation.
Recommended Readings: EVA by Stephen F. O'Byrne, Competitive Value Management by Hermann J. Stern