Financial Terms Glossary

VAE - Value Added (Economic)

Formal

VAE stands for Value Added (Economic) but it is identical to 'Net Present Value' when considering making an investment. It is sometimes referred to by Management Consultancies as 'Economic Value Add' (or EVA) and 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 result is either positive or negative - positive is a surplus, based on today's money values and therefore leads to acceptance of the project. A negative result effectively fails (in real terms) to deliver the required return. EVA can also refer to the method of evaluating the profitability of a project once it is in progress (i.e. after the initial investment decision). In this circumstance, the real historic Net Operating Profit After Tax (NOPAT) is included in the calculation instead of the future discounted cash flows.

Informal

VAE stands for Value Added (Economic) but it is identical to 'Net Present Value' when considering making an investment. It is sometimes referred to by Management Consultancies as 'Economic Value Add' (or EVA) and 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 result is either positive or negative - positive is a surplus, based on today's money values and therefore leads to acceptance of the project. A negative result effectively fails (in real terms) to deliver the required return. EVA can also refer to the method of evaluating the profitability of a project once it is in progress (i.e. after the initial investment decision). In this circumstance, the real historic Net Operating Profit After Tax (NOPAT) is included in the calculation instead of the future discounted cash flows.

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