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

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

    1. A stock or any other security representing an ownership interest. ...
  5. Asset/Liability Management

    A technique companies employ in coordinating the management of ...
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
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. What is the difference between earnings and income?

    The differences between earnings and income change depending on the context. Technically speaking, personal earnings are ... Read Full Answer >>
  3. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  4. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  5. What does an unfavorable variance indicate to management?

    In managerial accounting, an unfavorable variance is discovered when a company's management performs a comparison between ... Read Full Answer >>
  6. Is there a way to include intangible assets in book-to-market ratio calculations?

    The book-to-market ratio is used in fundamental analysis to identify whether a company's securities are overvalued or undervalued. ... 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. Personal Finance

    Financial Tips For People Who Hate Finance

    For people who hate financial planning, there's usually one big problem – which you can fix. Do it now.
  4. Investing

    Seven Investing Books For Your Summer Reading List

    It’s almost 4th of July, the season of summer reading. Picking up a book during your holiday can be a great opportunity to learn more investing.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    Calculating Net Realizable Value

    An asset’s net realizable value is the amount a company should expect to receive once it sells or disposes of that asset, minus costs from its disposal.
  7. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  8. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  9. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  10. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!