Economic value added (EVA): clarification of the concept and financial aspect

Turilo, Anatolii M.
Turilo, Anatolii A.
Sviatenko, Serhii
Klimchenko, Roman

Kryvyi Rih National University 11 Vitalii Matusevych St., Kryvyi Rih, Ukraine, 50027

Turilo, A. M., Turilo, A. A., Sviatenko, S. & Klimchenko, R. (2024) Economic value added (EVA): clarification of the concept and financial aspect. Socio-Economic Problems and the State (electronic journal), Vol. 31, no. 2, pp. 35-43. URL: http://sepd.tntu.edu.ua/images/stories/pdf/2024/24tamifa.pdf

Scientific Journal "Socio-Economic Problems and the State"

2(31)

Dec-2024

Oct-2024

4-Jan-2025

Ternopil Ivan Puluj National Technical University

UA

Ternopil

https://orcid.org/0000-0002-8136-1048
https://orcid.org/0000-0003-0669-6507
https://orcid.org/0000-0002-4086-0844
https://orcid.org/0009-0008-7069-6660

https://doi.org/10.33108/sepd2024.02.035

336.64:336.66:336.67

G32

Economic Value Added (EVA)
Profit-Payment Ratio (PPR)
financial and economic performance
liquidity
solvency
strategic financial management

9

35-43

35

43

The purpose of this study is to deepen the understanding of the concept of Economic Value Added (EVA) and to develop an improved comprehensive indicator for evaluating the financial and economic performance of enterprises. The Profit-Payment Ratio (PPR), proposed in the article, provides a more precise reflection of the relationship between economic efficiency and the cost of capital. To achieve the research objectives, the methods of scientific abstraction, logical generalization, critical analysis, comparative analysis of financial indicators, a structural-decomposition approach, and economic-mathematical modeling to analyze the impact of liquidity and solvency on enterprise performance are employed in the study. The Profit-Payment Ratio (PPR), as proposed, addresses the limitations of the traditional EVA indicator, particularly its abstract nature and misalignment with the realities of financial analysis. The PPR integrates the economic and financial outcomes of an enterprise's activities, capturing not only profit and capital charges but also the influence of such factors as liquidity, solvency, goodwill, and other significant aspects. Unlike EVA, this new metric accounts for the entire system of financial and economic conditions surrounding the enterprise. The Profit-Payment Ratio enables enterprises to assess their financial and economic performance with consideration of a broader range of variables, making it a useful tool for managing financial and economic activities. It facilitates more informed decision-making regarding capital utilization, asset management, and the achievement of strategic goals. This new approach also allows for better adaptation of performance evaluation to a dynamic market environment, as it considers both positive and negative shifts in economic and financial outcomes and the interrelation between economic and financial efficiency. The research identifies the main drawbacks of using EVA, such as its abstract nature and limited connection with negative financial and economic trends. The proposed Profit-Payment Ratio offers a more precise assessment of an enterpris’s financial and economic results by integrating profit, capital charges, and the effects of factors such as liquidity and solvency, making it an effective tool for strategic planning.

The authors received no direct funding for this research.

http://elartu.tntu.edu.ua/handle/lib/47181

2223-3822

Scientific Journal "Socio-Economic Problems and the State"

http://sepd.tntu.edu.ua/images/stories/pdf/2024/24tamifa.pdf
https://essuir.sumdu.edu.ua/handle/123456789/86903
https://doi.org/10.21272/1817-9215.2022.1-4

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Article

Scientific Journal "Socio-Economic Problems and the State", Vol.31, No.2