Cash value added (CVA) is a measure of business
profitability defined as
the
EBITDA
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, pronounced ) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandat ...
generated by the business, less tax, less its required return.
The
required return is an
annuity
In investment, an annuity is a series of payments made at equal intervals based on a contract with a lump sum of money. Insurance companies are common annuity providers and are used by clients for things like retirement or death benefits. Examples ...
based on the purchase price of the assets in use in the business, inflated to today's value of money, the
weighted average cost of capital (WACC) and the economic life of the assets.
CVA can also be expressed as an index, where the CVA is divided by the required return. An index of more than 1.0 will indicate profitability while an index below 1.0 will indicate value destruction.
See also
*
Economic value added
In accounting, as part of financial statements analysis, economic value added is an estimate of a firm's economic profit, or the value created in excess of the Required rate of return, required return of the types of companies, company's sharehol ...
(EVA)
*
Return on capital employed
Return on capital employed is an accounting ratio used in finance, valuation, and accounting. It is a useful measure for comparing the relative profitability of companies after taking into account the amount of capital used.Fernandes, Nuno. Fina ...
(ROCE)
*
Return on equity
The return on equity (ROE) is a measure of the profitability of a business in relation to its equity;
where:
: Jason Fernando (2023)"Return on Equity (ROE) Calculation and What It Means" Investopedia
Thus, ROE is equal to a fiscal year's net in ...
(ROE)
References
Valuation (finance)
Profit
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