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In the question Arkaig
The operating profit was $3175m.Amortization charges of $95m in the year have been incurred.
In the answers,
Operating profit =3175
add back:amortization =95But in the kaplan book it is given that we have to deduct amortization for the period.
Why do we add it back?
Thanks.You don’t add it back, you replace it with the economic depreciation. In the EVA calculation, one of the steps is to add back amortization/depreciation to NOPAT, then deduct economic depreciation instead. If you look at the Kaplan answer, you will see this is what they have done.
If economic depreciation is not given in the question, no adjustment for depreciation/amortization is required.
I would urge people coming across this thread to also see the following-
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