Financial Terms Glossary

EVA - Economic Value Add

Formal

An identical term for NPV commonly used by management consultancies. It stands for 'Economic Value Add' but means the same as the 'Net Present Value' definition. It is an investment appraisal technique that takes the minimum investment return required by companies and applies this percentage rate to the projected cash inflows and outflows from that project. (See DCF.) The answer is either positive or negative - positive is a surplus, based on today's money values and therefore leads to project acceptance. A negative result effectively fails in real terms to deliver the required return.

Informal

Sexier, in more common usage by business gurus, and twice as good looking as good old fashioned NPV - but basically the same. Imagine your father will give you $100, but he wants it back in one year's time with 10% interest. Your best friend has got this 'sure thing' and he will guarantee you $150 but only in one year's time. So, if you take the loan, you can pay back the $110 and still be $40 ahead at the end of the year. That $40 is worth about $36 in today's terms (10% interest rate). You have just made a 'Positive EVA' (a real profit) of $36 by taking your father's money today. Easy.

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