Benefits of Economic Value Added
Economic value added typically refers to value returns in monetary terms. It is the difference between the invested capital and the Net Operating Profit after Tax. Before buying stocks, it is imperative that you analyze the market value of that stock.
1. Indicates your company’s worth
Economic value added can help you determine the worth of your company as well as its stocks. It is the figure derived after calculating the company’s debt against its assets. It is always important to determine your firm’s debt load since the debt can affect your company’s value, as it means there is less capital for expansion. In other words, you can improve the company’s value by settling all the debts.
2. Easier to sell and buy stocks
I am sure you agree with me that it is easier to sell stocks with better market value. Many a times, people experience difficulty when selling stocks of low market value, therefore make sure you buy new stocks after the company has gained market value. Stock prizes usually rise after a publicized event, for instance Apple may decide to launch a new product, which in turn increases their market value in respect to stocks. Therefore, you should wait until the market value increases if you are looking to sell your stocks.
3. Better investment opportunities
Most of the time investors are not able to spot corporations that show substantial improvement in market value. Therefore, thorough research is important if you want to increase your chance of buying stocks from companies with better market value. This will enable you to reap full benefits of economic added value. A corporation’s ability to increase in market value is always the first criteria that will you should use when buying shares.
Although there are no known limitations of economic value added, it is always advisable to do thorough research before buying stocks.