Question
The primary difference between the EVA and economic profit measures is the increased focus on cash flow by EVA. For example economic profit generally uses
The primary difference between the EVA and economic profit measures is the increased focus on cash flow by EVA. For example economic profit generally uses the provision for income taxes from the income statement while EVA uses cash taxes paid. Eva companies typically make several adjustments from 5 to 15 adjustments for the typical EVA company to both operating income from the income statement and invested capital from the balance sheet. Common examples include adjustments for R&D, LIFO, and warranty costs. The following data is from 20x3 annual report of Burton Company: Income from operations $267,400 Provision for income taxes 57,455 Net EVA adjustments added to income from operations 5,398 Additional capital employed from EVA adjustments 234.159 Ending total shareholders equity 845,632 Cash taxes 64,800 Ending total current liabilities 340,125 Ending total assets 1,834,456 Beginning total shareholders equity 841,589 Beginning total current liabilities 471,859 Beginning total assets 1,889,321 Managements estimate of the cost of capital 11.3% Prepare a schedule that calculates and compares EVA to economic profit for Burton Company.
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