Today it is imperative for corporations to consider the welfare and concerns of multiple stakeholders in their strategic decision-making. The government, society at large, climate-change activists, suppliers, vendors exert an influence directly or indirectly in company policies.
GovEVA understands this shift in power from shareholders to a larger ecosystem of stakeholders. Yet we believe in linking every activity of an organization with its economic outcome and calculate its long-term value creation. This Goveva philosophy is embedded in our software such that our powerful algorithm can calculate the incremental value of every activity linked to Environment, Social, and Governance undertaken by the organization, on a real-time basis.
Economic Value Added a.k.a EVA was popularised by Joel Stern and Bennett Stewart in the 1990s. In simple terms, it is a financial metric based on residual wealth, calculated by deducting a firm’s cost of capital (weighted average cost of both debt and equity) from operating profit.
Nevertheless, the calculation of the cost of capital is complex and derived from multiple factors. For example, the opportunity cost of investors’ cash is a difficult metric to arrive at.
On the other hand, Net Operating Profit after tax (NOPAT) rarely reflects the amount of cash left at the end of the year for shareholders. Therefore multiple adjustments to earnings and balance sheets for goodwill, depreciation, R&D, etc need to be made before arriving at EVA.
Goveva’s patented algorithm churns through 120 ratios that cover earnings, margins, growth, and returns. Over and above the ratio analysis, there is a huge amount of external data collected from our partner CMIE and analyzed to arrive at the EVA.
Goveva’s complex EVA score enables organizations to arrive at the true wealth created over a period of time. Paired with the measurement engine for initiatives undertaken for Environmental and Social impact creation and good Corporate Governance, companies can measure their real economic value created for sustainable impact.