Do companies that generate profits make economic value added?

Robert Zenzerović


This paper focuses on determining the differences between economic value added (EVA), net operating profit after tax (NOPAT), earnings before interest and taxes (EBITDA), and net income or loss for non-financial business entities operating in the Republic of Croatia in the period 2002-2021. The main objective of this paper is to determine whether non-financial activities create economic value added, and rank them according to selected indicators based on EVA. Research results indicate that there were only 27 out of 309 cases where EVA was positive, indicating that only the information and communication sector generated, on average, positive EVA during this twenty-year period. Positive EVA was generated in certain years in companies conducting human health and social work activities, education, mining, and quarrying, as well as in wholesale and retail trade activities, but the average EVA for this twenty-year period in these sectors was negative. At the same time, net income was achieved in 246 cases, and NOPAT in 285. Meanwhile, EBITDA was positive in all cases, demonstrating an obvious discrepancy between EVA and other financial performance measures. Correlation analysis results indicate that there is a statistically significant moderate correlation between EVA and net income/loss, although the correlation is generally stronger between EVA and EBITDA-based indicators. According to research results, the answer to the question in the title of this paper is negative, emphasizing the possibilities of intensive introduction of EVA as a financial performance indicator.

Keywords: economic value added (EVA), EVA per business entity, EVA/total assets, EVA/capital employed net income/loss, NOPAT, EBITDA, net income/loss


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Robert Zenzerović

The author is a full professor at the Juraj Dobrila University of Pula, Faculty of Economics and Tourism, where he teaches Business Accounting, Accounting Information Systems, Auditing and Business Analysis, Strategic Management Accounting, and Forensic Accounting. The author's focus of interest is auditing, business analysis and forensic accounting topics. He has published one book, two book chapters, and forty articles, and was a member of the management team of the Faculty of Economics and Tourism, working for four years as a vice dean and three years as a dean. The author is also active in the business community, in which he has served as a member of various supervisory and auditing boards.

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The article is in the printed version on pages 83-88.

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Zenzerović, R. (2023).Do companies that generate profits make economic value added? e-mentor, 2(99), 83-88.