EVA and Free Cash Flow




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Kim, USA

EVA and Free Cash Flow

What are the differences between EVA and free cash flow (FCF)? How to apply both of them?
 
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Salostey, Russia
 

No Differences

npv = fcf / (1 + wacc) invested capital = eva / (1 + wacc)
or:
eva = nopat - invested capital x wacc
in long time period:
invested capital (ic) = amortization and depreciation (ad)
so:
nopat = fcf ad
so:
npv = eva / (1 + wacc) = [(fcf - ad) - ic x wacc] / ( 1 + wacc)
or:
npv = (fcf - ic - ic x wacc) / ( 1 + wacc) = [fcf - ic (1 + wacc)] / (1 + wacc) = fcf / (1 + wacc) ic
Thus, they are 2 different sides of the same coin.

   

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