NPV vs. IRR vs. EVA

What's the difference?

Ever wondered how to evaluate your investments?

Here's a quick guide:

📊 𝗡𝗣𝗩 (𝗡𝗲𝘁 𝗣𝗿𝗲𝘀𝗲𝗻𝘁 𝗩𝗮𝗹𝘂𝗲):

- 𝘞𝘩𝘢𝘵 𝘪𝘵 𝘪𝘴: The difference between the present value of cash inflows and outflows.

- 𝘞𝘩𝘺 𝘪𝘵 𝘮𝘢𝘵𝘵𝘦𝘳𝘴: Helps assess the absolute value of investments.

- 𝘍𝘰𝘳𝘮𝘶𝘭𝘢: NPV = Σ(Cash inflow/outflow) / (1 + r)^t

- 𝘗𝘳𝘰𝘴: Provides real dollar value, accounts for time value of money.

- 𝘊𝘰𝘯𝘴: Requires estimated cash flows and discount rates.

💹 𝗜𝗥𝗥 (𝗜𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗥𝗮𝘁𝗲 𝗼𝗳 𝗥𝗲𝘁𝘂𝗿𝗻):

- 𝘞𝘩𝘢𝘵 𝘪𝘵 𝘪𝘴: The rate at which an investment breaks even.

- 𝘞𝘩𝘺 𝘪𝘵 𝘮𝘢𝘵𝘵𝘦𝘳𝘴: Facilitates comparison between different investments.

- 𝘍𝘰𝘳𝘮𝘶𝘭𝘢: Solve for NPV = 0.

- 𝘗𝘳𝘰𝘴: Intuitive; accounts for time value.

- 𝘊𝘰𝘯𝘴: Multiple results for non-standard cash flows.

💰 𝗘𝗩𝗔 (𝗘𝗰𝗼𝗻𝗼𝗺𝗶𝗰 𝗩𝗮𝗹𝘂𝗲 𝗔𝗱𝗱𝗲𝗱):

- 𝘞𝘩𝘢𝘵 𝘪𝘵 𝘪𝘴: Profit after subtracting cost of capital.

- 𝘞𝘩𝘺 𝘪𝘵 𝘮𝘢𝘵𝘵𝘦𝘳𝘴: Reflects true economic profit.

- 𝘍𝘰𝘳𝘮𝘶𝘭𝘢: EVA = NOPAT - (WACC × Capital Employed).

- 𝘗𝘳𝘰𝘴: Highlights actual profit over cost.

- 𝘊𝘰𝘯𝘴: Complex to calculate.

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