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EVA is calculated as NOPAT less capital employed*WACC
Capital employed is equity plus debt at the start of the year
The question is by saying equity we mean shareholder funds only/ or shareholder funds plus retained earnings?
Shareholders’ funds includes retained earnings. So capital employed=
Share capital + reserves (retained earnings) + long term debt.
Thank you for your answer,
In chapter 10, page 63, example 5 of your course notes, you calculate EVA for two years 2006 and 2007. As per question capital employed at the end of 2005 i.e. start of 2006 is 400k so we consider it as capital employed in 2006. For capital employed in 2007, we go to SFP 2006. Answer says 312 (shareholder funds) + 88 (long-term debt) = 400 . Does 312 ( shareholder funds) already include Retained earnings of 47 for 2006?
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