Measuring the value creation of infosys through economic value added (eva)

One latest innovation in the field of internal and external performance measurement is a trade-marked variant of residual income known as Economic Value-Added (EVA). Several well known companies have begun to use EVA in recent years as an internal measure of performance, and one may speculate that its popularity will only persist. The purpose of this paper is to provide an overview and analysis of the Economic ValueAdded (EVS) metric.This paper highlights someadvantages and disadvantages from its proponents and critics.A case of Infosys has been taken to explain EVA concept, where the financial data for five consecutive years has been obtained for this company and EVA has been calculated. Three variants of the relationship between the value of the EVA indicator and investors’ behavior as suggested by Fernández, Pablo in 2000have been applied on the financial data of Infosys. The EVA calculations show that Infosys creates value for the shareholders. Even if more pessimistic figures are used for the capital cost, EVA shows that Infosys created value each year, and even incrementally. This paper concludes that economic value added has a significant relationship with the shareholders’ created wealth though this concept has many limitations when it comes to comparability.With mounting pressure on firms to deliver shareholder value, there has been a transformed emphasis on devising measures of corporate financial performance and incentive compensation plans that encourage managers to increase shareholder wealth justifies why the concept of EVA is gaining momentum.