Which of the following is a key difference between EVA and residual income?

A) The weighted average cost of capital is used to calculate EVA, but not necessarily for residual income.
B) Net profit is used to calculate residual income but is irrelevant for EVA.
C) EVA has a long term focus, but residual income has a short term focus.
D) There is no difference between EVA and residual income.

EVA

Economic Value Added represents a metric for assessing a company's financial success, determined by subtracting the cost of capital from the operating profit to calculate the leftover wealth.

Residual Income

Income that remains after all personal debts and expenses have been paid, or in corporate finance, the amount of net income left over after paying out dividends to shareholders.

Weighted Average Cost of Capital

A calculation of a firm's cost of capital in which each category of capital (debt, equity, etc.) is proportionately weighted, reflecting the cost of financing new projects based on the company's existing capital structure.