Unlike earlier performance measures, the adoption of C(EVA) is a relatively new measurement technique to assess shareholder wealth. EVA is a measurement tool that determines value addition if a business is earning more than its true cost of capital. Proponents of EVA believe that it provides corporate managers a clearer idea of whether they are creating or destroying shareholder wealth. The concept of EVA is gaining popularity in India as a superior performance measure both for corporate reporting and for internal governance.

In this perspective, this paper traces the background of EVA and tries to assess the need for it in its first section. The second part of the article deals with general ideas on EVA. The third part makes an effort to forge a relationship between EVA and MVA and also between EVA and NPV. In the fourth section, benefits and limitations of EVA have been discussed. The fifth part criticizes conventional measures and EVA. An attempt has been made to explain the method of implementation of EVA and other value-based measures in the next part of this paper.

Of late, several companies around the world have adopted a relatively new measurement technique to assess shareholder wealth-"Economic Value Added" (EVA). In many cases, EVA has been treated simply as a measure of operating performance. Most of the conventional performance measures like Return On Equity (ROE), Return On Assets (ROA) and operating profit margin directly relate to the current net income of an enterprise with equity, total assets and net sales. Each of these indices measure a different aspect of performance. ROE measures the performance from the perspective of the equity holders and ROA determines the asset productivity and operating profit margin reflects the margin realized by the firm at the market place. There is no denying the fact that the net income figure is dependent on the operational efficiency, financial leverage and the ability of the entity to formulate the right strategy in order to earn adequate margin in the market place. It is significant to note that none of these measures reflect the complete picture of corporate performance by themselves truly and fairly.

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