Question on EVA — OpenTuition Forums

Mmusicyy14y ago

Dear Sir,

Thank you so much for the free lecture which really helpful!

Just one question on Example 5 Chapter 10 - EVA:

When calculating adjusted profit for EVA, we add back "after tax interest", but "before tax non-cash expenses". Just wonder why there is no need to exclude the tax benefit on non-cash expenses. Why we use different tax approach towards interest expenses against non-cash expenses?

Hope to hear from you soon. Thank you!

Best regards,
Music

kengarrettTutor14y ago#1

Whereas interest definitely attracts tax relief, it is unlikely that non-cash expenses would. The reason for adding these back is that they are not 'real' expenses, so are therefore unlikely to be allowed for tax.

Mmusicyy14y ago#2

Got it, like provisions, accrued expenses - non deductible for tax purposes.

Thank you very much!!

Have a nice day:)

Mmusicyy14y ago#3

Sorry, one more question:
in this case, is it need to be added back to capital employed?
Thanks!

kengarrettTutor14y ago#4

If these are not real expenses then retained earnings would be greater.

Mmusicyy14y ago#5

thank you!

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