Question

The primary difference between the EVA and economic profit measures is the increased focus on cash flow by EVA. For example, economic profit generally uses the provision for income taxes from the income statement while EVA uses cash taxes paid. EVA companies typically make several adjustments (from 5 to 15 adjustments for the typical EVA company) to both operating income from the income statement and invested capital from the balance sheet. Common examples include adjustments for R&D, LIFO, and warranty costs.
The following data were taken from the 20X3 annual report of Burton Company (thousands of dollars):
Income from operations $ 267,400
Provision for income taxes 57,455
Net EVA adjustments added to income from operations 5,398
Additional capital employed from EVA adjustments 234,159
Ending total shareholders’ equity 845,632
Cash taxes 64,800
Ending total current liabilities 340,125
Ending total assets 1,834,456
Beginning total shareholders’ equity 841,589
Beginning total current liabilities 471,859
Beginning total assets 1,889,321
Management’s estimate of the cost-of-capital 11.3%

Prepare a schedule that calculates and compares EVA to economic profit for Burton Company.




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  • CreatedNovember 19, 2014
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