FIN 630 – Return on Invested Capital (ROIC) and Economic Value Added (EVA)
June 7th, 2024
1. Return on Invested Capital (ROIC) and Economic Value Added (EVA) are commonly used as measures of division management performance. Are these measures equally useful for, say, a consumer goods company and a natural resources company (oil is the most visible example)? In commenting, you should consider the nature of what goes into the measures (numerators and denominators, e.g.), and that you can assume you have access to internal company data2. Stories in the business press typically comment on a company’s earnings and its price/ earnings ratio as a guide to valuation. What’s right or wrong with this? How does it compare with the Corporate Valuation Model we are using? Is Enron relevant to your view?