One Calculates EVA as Follows

question 57

Multiple Choice

One calculates EVA as follows:

• A)EVA = (ROI − r)× (capital invested), where r = cost of capital.
• B)EVA = (ROI + r)× (capital invested), where r = cost of capital.
• C)EVA = (ROI)× (capital invested).
• D)EVA = (ROI)/(capital invested).

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Definitions:

Gross Margin

The difference between sales revenue and cost of goods sold, representing the profitability before deducting selling and administrative expenses.

Return On Total Assets

A financial ratio that measures how effectively a company is using its assets to generate profit, calculated as net income divided by total assets.

Return On Equity

A measure of financial performance calculated by dividing net income by shareholder's equity, indicating how well a company uses investments to generate earnings growth.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period.