Economic Value Added of Rio Tinto Company

ECONOMIC VALUE ADDED OF RIO TINTO COMPANY
Economic value added (EVA) is known as the increased
percentage in the difference between a company’s rate of
return and its cost of capital. It is a suitable measure for the
economic and financial prospect of a company and is
considered as a better measure than the increase in earnings.
Rio Tinto is a well renowned company in the world which
deals in the extraction of minerals in around six continents
and 35 countries. It has its head quarters in London and has a
great market capitalization Johnson (2014, p.119-142).

Calculation of Economic value added
Rio Tinto is a strong company with bigger growth prospective with intense market
capitalization Iazzolino, Gianpaolo and Domenico (2013, p.547-563).
EVA considers the weighted average cost of capital which is the cost of investment
from the rate dependent on borrowing amounts along with inclusion of cost of debt
and equity.
The formula for Eva estimation is,
EVA= After tax operating income- {WACC* (Total assets – current liabilities)}
From the figures in the right-hand side, EVA for Rio Tinto is estimated which is
11595.86, which is high showing that the company has greater returns from
investment.