Rs 100 cr deployed. 5 years. Three spreads.
Economic Value Added picks up where the income statement stops. EVA equals (ROCE minus WACC) times capital. Same revenue line. Three different remaining piles at the end.
| Cohort |
Spread |
EVA Yr 1 |
5Y EVA |
End book |
| CompounderBrand sleeve . ROCE 22 WACC 12 |
+10 pp |
Rs 10 cr |
Rs +50 cr |
Rs 150 cr |
| TreaderUtility sleeve . ROCE 12 WACC 12 |
0 pp |
Rs 0 cr |
Rs 0 cr |
Rs 100 cr |
| DestroyerCapex-heavy . ROCE 8 WACC 12 |
-4 pp |
Rs -4 cr |
Rs -20 cr |
Rs 80 cr |
Cumulative EVA after 5 years . Rs cr on a 100 cr base
EPS rose every year on all three. The income statement counts the rupee that arrived. The cost of capital is the rupee that should have. The gap is the only honest measure of value created or destroyed.