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Dear sir,
In the Economic Value Added problems, we add back interest payable, non-cash expenses, etc. to the Statement of Profit/Loss, but in the SFP, I notice that in Exercise 5, on Page 46 of the notes, we have added back non-cash expenses, R&D expenses, etc. to the ‘Capital Employed’,
but…
Why haven’t we added back interest payable?
Just like we added back non-cash expenses, R&D, etc., why haven’t we added back Interest payable too?
Because, as you will recollect, interest payable was added back to the SPL. Why not to the capital employed?Thank you, Warm Regards
Hi, Thanks for your question.
The interest costs in EVA calcs are already deducted by the WACC % charge on the cost of capital so we don’t deduct them again.We find EVA by taking profit after tax but before interest. The adjustment amount you see in exercise 5 is adding back the tax effect.
Kind Regards
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