Things to Note about EVA EVA is a measure of dollar surplus value , not the percentage difference in returns. The value of a firm, in DCF terms , can be written in terms of the EVA of projects in place and the present value of the EVA of future projects. In Summary Both EVA and Discounted Cash Flow Valuation should provide us with the same estimate for the value of a firm. In their full forms, the information that is required for both approaches is exactly the same - expected cash flows over time and costs of capital over time. A policy of maximizing the present value of economic value added over time should be the equivalent of a policy of maximizing firm value.
Many firms use the book value of capital invested as their measure of capital invested.
To the degree that book value reflects accounting choices made over time, this may not be true. Again, the accounting definition of return on capital may not reflect the economic return on capital. The operating income also has to be cleansed of any cosmetic or temporary effects. DCF valuation assumes that cost of capital is calculated using market values of debt and equity. If it assumed that both assets in place and future growth are financed using the market value mix, the EVA should also be calculated using the market value.