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 shareholder's equity 841,589
- Beginning total current liabilities 471,859
- Beginning total assets 1,889,321
- Management's estimate of the cost of capital 11.3%
Prepare a schedule that calculates and compares EVA to economic profit for Burton Company.