Economic Value Added Matrix

The Economic Value Added (EVA) matrix is a tool used to measure the economic value of a business. It is a 2x2 matrix that compares the return on invested capital (ROIC) to the cost of capital (WACC). The matrix helps to determine whether a company is creating or destroying value.

At a very high level, the Economic Value Added Matrix is used in the context of business, finance.

Economic Value Added Matrix quadrant descriptions, including examples
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What is the Economic Value Added Matrix?

A visual explanation is shown in the image above. The Economic Value Added Matrix can be described as a matrix with the following quadrants:

  1. Value Creation: ROIC > WACC (e.g. ROIC = 10%, WACC = 8%)
  2. Value Destruction: ROIC < WACC (e.g. ROIC = 6%, WACC = 8%)
  3. Value Preservation: ROIC = WACC (e.g. ROIC = 8%, WACC = 8%)
  4. Value Enhancement: ROIC > WACC, but not by a large margin (e.g. ROIC = 9%, WACC = 8%)

What is the purpose of the Economic Value Added Matrix?

The Economic Value Added (EVA) matrix is a tool used to measure the economic value of a business. It is a 2x2 matrix that compares the return on invested capital (ROIC) to the cost of capital (WACC). The matrix helps to determine whether a company is creating or destroying value.

The EVA matrix is divided into four quadrants. The top-left quadrant is the “value creation” quadrant, and it represents the situation where the return on invested capital (ROIC) is greater than the cost of capital (WACC). This is the ideal situation, as it means that the company is creating value for its shareholders. The top-right quadrant is the “value destruction” quadrant, and it represents the situation where the ROIC is less than the WACC. This is not ideal, as it means that the company is destroying value for its shareholders.

The bottom-left quadrant is the “value preservation” quadrant, and it represents the situation where the ROIC is equal to the WACC. This is not ideal, as it means that the company is not creating value, but it is also not destroying value. The bottom-right quadrant is the “value enhancement” quadrant, and it represents the situation where the ROIC is greater than the WACC, but not by a large margin. This is not ideal, as it means that the company is not creating a lot of value, but it is also not destroying value.


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What templates are related to Economic Value Added Matrix?

The following templates can also be categorized as business, finance and are therefore related to Economic Value Added Matrix: Effort Impact Matrix, Gap Analysis Matrix, Growth Share Matrix, Kraljic Matrix, Outsourcing Matrix, Quadrant Analysis, Risk Analysis Matrix, Risk Value Matrix. You can browse them using the menu above.

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