Financial Terms Glossary

VAE%

Formal

VAE % stands for Value Added (Economic) % and is the profit on the investment described in a suitable format for external investors in the business. If the investors expect, e.g. a 10% return on their investment, they 'make money' only to the extent that their share of after-tax operating profits exceeds the business' minimum returns. Hence, the VAE % is the difference between the IRR % of the proposal and the minimum % return required by the customer. Management Consultancies often refer to this 'Economic Value Add' (or EVA%). A positive answer = IRR is higher than the minimum requirements of the customer, and the project should be accepted. A negative answer = IRR is lower than the minimum requirements of the customer, and the project may not be accepted on these current parameters.

Informal

VAE % stands for Value Added (Economic) % and is the profit on the investment described in a suitable format for external investors in the business. If the investors expect, e.g. a 10% return on their investment, they 'make money' only to the extent that their share of after-tax operating profits exceeds the business' minimum returns. Hence, the VAE % is the difference between the IRR % of the proposal and the minimum % return required by the customer. Management Consultancies often refer to this 'Economic Value Add' (or EVA%). A positive answer = IRR is higher than the minimum requirements of the customer, and the project should be accepted. A negative answer = IRR is lower than the minimum requirements of the customer, and the project may not be accepted on these current parameters.

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