Schweser doesnt outright say it, but are EVA and Economic Profit the exact same thing? NOPAT-$WACC. Schweser also says " Residual Income, or economic profit…" Does this imply that Residual Income, Economic Profit, and EVA are all the same thing?
My understanding is that EVA and EP are the same. These both measure the excess returns to all providers of capital. However, Residual income just measure excess return to providers of equity capital: RI = NI - equity charge = NI - (equity required return*beg. period BV of equity) Please correct me if I am wrong.
EVA was trade/service-marked by Stern Stewart (who has since gone out of business). It’s a proprietary residual income technique that includes literally hundreds of adjustments to reported financials. CFROI, owned by Credit Suisse, is another prop RI algorithm with similar focus on adjustments. RI is a generic term for all of these approaches, and I think it requires removing a cost of capital from profit. EP, IIRC, requires removing the opportunity cost of capital from profit. So RI=EP if your funding cost equals the opportunity cost.