Economic value added (EVA) analysis is one of the most common methods to evaluate company’s performance in terms of value creation, which involves ROIC (Return on Invested Capital) and WACC (Weighted Average Cost of Capital) as key drivers. Past studies evaluate the superiority of EVA over other measures of performance and relationship between EVA and stock returns. This paper analyzes the relationship between EVA and bankruptcy on 373 public traded companies in U.S. of which 178 companies filed for bankruptcy between the year of 2015 to October 2017. We present descriptive statistics, conduct univariae grouping tests and correlation between ROIC, WACC, NOPAT, and EVA, and logistic regression analysis for each sector. The results show that non-bankrupt firms tend to have higher WACC (compared to relative very low and negative WACC of bankrupt companies), higher NOPAT, and higher ROIC. EVA has correlation with bankruptcy but its significant level varies across sectors. The findings also suggest that WACC is another good indicator of bankruptcy.
Lu, Amanda (Jinxian), "EVA: An Indicator of Corporate Bankruptcy?" (2017). Honors College Theses. 160.