Economic Value Of Equity - EVE

AAA

DEFINITION of 'Economic Value Of Equity - EVE'

A cash flow calculation that takes the present value of all asset cash flows and subtracts the present value of all liability cash flows. This calculation is used by banks for asset/liability management.

INVESTOPEDIA EXPLAINS 'Economic Value Of Equity - EVE'

The value of a bank's assets and liabilities are directly linked to interest rates. By calculating its EVE, a bank is able to construct models that show the effect of different interest rate changes on its total capital. This risk analysis is a key tool that allows banks to prepare against constantly changing interest rates.

RELATED TERMS
  1. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Liability

    A company's legal debts or obligations that arise during the ...
  3. Asset/Liability Management

    A technique companies employ in coordinating the management of ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Equity

    1. A stock or any other security representing an ownership interest. ...
  6. Discounted Future Earnings

    A method of valuation to estimate the value of a firm.
RELATED FAQS
  1. What's the difference between EaR, Value at Risk (VaR), and EVE?

    Earnings at risk (EaR), value at risk (VaR) and economic value of equity (EVE) are measures used to assess potential value ... Read Full Answer >>
  2. Why should I dig further if I find a company has positive cash flow from investing ...

    A positive cash flow from investing activities could signal that a company is in financial trouble and is selling off its ... Read Full Answer >>
  3. Why is an increase in capital stock on a company's balance sheet a bad sign for stockholders?

    An increase in the total of capital stock showing on a company's balance sheet is bad for investors, because it represents ... Read Full Answer >>
  4. How are Net Credit Purchases calculated in the accounts payable turnover ratio?

    The accounts payable turnover ratio treats net credit purchases as equal to cost of goods sold (COGS) plus ending inventory, ... Read Full Answer >>
  5. Is it wise for a company to have heavy cash flow investing activities outside of ...

    It is only wise for a company to have heavy cash flow from investing activities outside of capital expenditures if that company ... Read Full Answer >>
  6. How can I use cash flow investing activities to determine if a company is growing?

    It is possible to use a company's cash flow from investing activities to determine if that company is growing by looking ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  3. Economics

    Explaining the Value Chain

    A model of how businesses receive raw materials as input, add value to the raw materials, and sell finished products to customers.
  4. Fundamental Analysis

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  5. Investing Basics

    Understanding Risk-Return Tradeoff

    The essence of risk-return tradeoff is embodied in the common phrase “no risk, no reward.”
  6. Economics

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  7. Economics

    Modified Internal Rate of Return (MIRR)

    Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation.
  8. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  9. Economics

    What is the Cash Ratio?

    The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities.
  10. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.

You May Also Like

Hot Definitions
  1. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  2. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  3. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  4. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  5. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
Trading Center