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Strategies & Market Trends : Professional Equity Analysis - the Pursuit of True Value

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To: Winston Chang who wrote (73)	2/14/1997 2:53:00 AM
From: cape radical	of 102

winston, thanks for your response. the first thing that an investor should always ask is whether the target company is creating wealth. EVA provides a quick means of determining this: EVA = Invested Capital (Beg of Year)*(ROIC - WACC) ROIC= Return on Invested Capital WACC=Weighted average cost of capital notice that it does not matter where the capital comes from when calculating ROIC. this is a great advantage over ROE and other leverage sensitive measures. As you mentioned this is no means for instantly determining whether a company is too expensive. if a company passes the above test, i look at its adjusted PE, growth, prospects, etc. i also like calculating EVA/Share. for example, although ASND is creating wealth, it is far too expensive according to my analysis. COMS and USRX are very attractive wealth creators. the question still remains: can these companies sustain growth and innovation. no one said the investment decision was easy, but EVA gives you a quick litmus test.

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