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Corporate Financial Reporting · Recent Developments in Financial Reporting

Value Added Statement and Economic Value Added (EVA)

Updated 11 October 2026 · Fact-checked

A value added statement shows the wealth a company creates (sales less bought-in goods and services) and how that value is shared among employees, lenders, government, shareholders and the business. EVA is net operating profit after tax minus a charge for capital. MVA is market value of the firm's capital minus capital invested.

Understand Value Added Statement and Economic Value Added

A profit and loss account shows what is left for owners. A value added statement (VAS) shows a wider picture: how much wealth the business created and who shared in it. It treats employees, lenders, government and shareholders as partners in creating value.

Value added = value of output (sales and other income) minus the cost of bought-in materials and services. These bought-in items were created by other businesses, so they are not your value. Depreciation is usually treated as a charge in arriving at net value added, but it is not paid to anyone, so it stays within the business.

The statement has two parts. Part one computes value added. Part two shows its application: employees (wages, bonus, benefits), providers of capital (interest, dividend), government (taxes), and retained in the business (depreciation, reserves). The two parts must agree. Uses: judge productivity, compare firms, support employee bonus schemes, and show social contribution.

EVA moves from the accounting view to the economic view. Accounting profit ignores the cost of equity. EVA charges the business for all capital used, debt and equity. If EVA is positive, the business earns more than investors require. If negative, it destroys value even if it shows an accounting profit.

MVA looks at the market's verdict. It is the gap between what investors can take out (market value of the firm) and what they put in (capital invested). EVA is a yearly flow measure from internal data. MVA is a cumulative measure that needs market prices, so it applies mainly to listed companies.

Key rules to remember

Gross value added
Gross VA = Sales (and other income) − Bought-in materials and services
Bought-in items include materials, power, fuel, and other purchased services. Wages, interest, tax and dividend are not deducted.
Net value added
Net VA = Gross VA − Depreciation
Check what the question asks for: gross or net.
Application of value added
Value added = Employees + Lenders + Government + Shareholders + Retained (depreciation + reserves)
Total of the application must equal value added in part one.
NOPAT
NOPAT = EBIT × (1 − tax rate)
Use operating profit before interest. Tax is on operating profit.
Capital employed
Capital employed = Equity + Reserves + Debt (long-term funds)
Use the capital definition given in the question. Equivalent: net fixed assets + net working capital.
WACC
WACC = [E × Ke + D × Kd × (1 − t)] ÷ (E + D)
E and D are market or book values as the question specifies. Debt cost is after tax.
Economic Value Added
EVA = NOPAT − (WACC × Capital employed)
The product is the capital charge. Alternative: EVA = (ROCE after tax − WACC) × Capital employed.
Market Value Added
MVA = Market value of the firm (equity + debt) − Capital invested
Positive MVA means wealth created for investors. Commonly, market value of equity = shares × market price.

How to solve Value Added Statement and Economic Value Added questions

Decide first whether the question wants a VAS, EVA, MVA, or a mix. Then work in a fixed order so no item is missed.

  1. 1Read the data and tag every item: sales or income, bought-in cost, employee cost, finance cost, tax, dividend, depreciation, reserves.
  2. 2For a VAS, compute value added: sales and other income less bought-in materials and services. Do not deduct wages, interest or tax here.
  3. 3Check depreciation treatment. If gross value added is asked, keep depreciation in the application. If net, deduct it first.
  4. 4Prepare the application side with columns for amount and percentage of value added: employees, lenders, government, shareholders, retained.
  5. 5Tick the total of application against value added. A mismatch means a missed or misclassified item.
  6. 6For EVA, compute NOPAT = EBIT × (1 − t), then WACC, then capital employed, then the capital charge.
  7. 7EVA = NOPAT − capital charge. For MVA, take market value of capital less capital invested.
  8. 8Close with a one-line conclusion: whether value was created and how it was shared.

Quickest way: Single-pass tagging for VAS and EVA

When to use it: Use in the exam when the trial balance or profit and loss data is long and time is short.

  1. Write value added in one line: Sales + other income − (materials + power + other bought-in services).
  2. Write the application heads in a fixed order and drop each item in once, striking it off the data.
  3. Compute the retained portion as value added minus all other applications, then check it equals depreciation plus reserves.
  4. For EVA, write WACC first as a percentage, then multiply by capital employed before touching NOPAT.
  5. Always compute after-tax cost of debt. Mark it with a star so you do not forget.

Common mistakes in Value Added Statement and Economic Value Added

  • Deducting wages or interest while computing value added

    Students copy the profit and loss logic where all costs are deducted.

    Fix: Deduct only bought-in goods and services. Wages, interest and tax are shares of value added, shown in the application.

  • Application total does not match value added

    Depreciation, reserves or provision items are left out or counted twice.

    Fix: Include depreciation and retained profit under the retained head. Always cross-check the totals.

  • Treating bad debts or provisions as bought-in cost without thought

    Students are unsure whether they are payments to outsiders.

    Fix: Follow the question's instruction. If silent, state your assumption in one line and apply it consistently.

  • Using pre-tax cost of debt in WACC

    The tax shield is forgotten when data gives only interest rate.

    Fix: Use Kd × (1 − t) every time debt is in the capital structure.

  • Using net profit instead of NOPAT in EVA

    Students take the final profit figure from the statement.

    Fix: Start from operating profit before interest, then deduct tax. Interest is already covered by the capital charge.

  • Confusing EVA and MVA

    Both mention value and capital.

    Fix: EVA is a yearly measure from accounting data. MVA is a cumulative measure using market value of capital minus capital invested.

Worked examples

Example 1

A company reports: Sales ₹50,00,000; Materials consumed ₹20,00,000; Other bought-in services ₹4,00,000; Wages and salaries ₹8,00,000; Interest ₹2,00,000; Depreciation ₹3,00,000; Income tax ₹3,00,000; Dividend ₹4,00,000; Profit retained ₹6,00,000. Prepare a value added statement and show the percentage share of each party.

Show the solution
  1. Value added = 50,00,000 − 20,00,000 − 4,00,000 = ₹26,00,000 (gross value added).
  2. Employees: ₹8,00,000, which is 8 ÷ 26 = 30.77%.
  3. Lenders (interest): ₹2,00,000, which is 7.69%.
  4. Government (tax): ₹3,00,000, which is 11.54%.
  5. Shareholders (dividend): ₹4,00,000, which is 15.38%.
  6. Retained in business: depreciation 3,00,000 + retained profit 6,00,000 = ₹9,00,000, which is 34.62%.
  7. Check the total: 8 + 2 + 3 + 4 + 9 = ₹26,00,000. It matches. Net value added = 26,00,000 − 3,00,000 = ₹23,00,000.

Answer: Gross value added is ₹26,00,000 (net ₹23,00,000). Application: employees 30.77%, lenders 7.69%, government 11.54%, shareholders 15.38%, retained 34.62%.

Example 2

A company has equity of ₹60,00,000 (cost of equity 15%) and 10% debt of ₹40,00,000. Tax rate is 25%. EBIT is ₹20,00,000. Capital employed equals equity plus debt. Compute EVA. If the market value of equity is ₹90,00,000 and debt is at market value of ₹40,00,000, compute MVA.

Show the solution
  1. Capital employed = 60,00,000 + 40,00,000 = ₹1,00,00,000.
  2. After-tax cost of debt = 10% × (1 − 0.25) = 7.5%.
  3. WACC = (60 × 15% + 40 × 7.5%) ÷ 100 = (9 + 3) ÷ 100 = 12%.
  4. NOPAT = 20,00,000 × (1 − 0.25) = ₹15,00,000.
  5. Capital charge = 12% × 1,00,00,000 = ₹12,00,000.
  6. EVA = 15,00,000 − 12,00,000 = ₹3,00,000.
  7. Market value of firm = 90,00,000 + 40,00,000 = ₹1,30,00,000.
  8. MVA = 1,30,00,000 − 1,00,00,000 = ₹30,00,000.

Answer: EVA is ₹3,00,000 (positive, so value is created in the year). MVA is ₹30,00,000, showing the market values the firm above the capital invested.

Exam tips

  • Show the format cleanly: part one value added, part two application with a percentage column. Marks are given for layout.
  • State your assumption in one line when an item such as bad debts or provisions is unclear.
  • In EVA problems, show WACC working separately. Even if NOPAT slips, you can still earn marks for the cost of capital.
  • Add a short comment: positive EVA means value creation, and a high share to employees or government shows how value is distributed.
  • Expect MCQs on definitions: what is deducted in value added, and the difference between EVA and MVA. Revise the formulas above.

Practice questions from Recent Developments in Financial Reporting

Value Added Statement and Economic Value Added in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Value Added Statement and Economic Value Added: frequently asked questions

What is the format of a value added statement for CMA Final?

It has two parts. First, value added is computed as sales and other income less bought-in materials and services. Second, the application shows employees, lenders, government, shareholders and retained funds, each with amount and percentage.

What is the difference between EVA and MVA?

EVA is a yearly measure: NOPAT less a charge for all capital. MVA is cumulative: market value of the firm less capital invested. EVA uses accounting data, while MVA needs market prices.

Is depreciation deducted in a value added statement?

It depends on whether gross or net value added is asked. For gross value added it is not deducted and appears under retained funds. For net value added it is deducted first.

Why is EVA better than accounting profit?

Accounting profit does not charge for the cost of equity. EVA charges for all capital, so it shows whether the business earns more than investors expect.