IAS15 inflation adjustments and EVA: Empirical evidence from a highly variable inflation regime

Abstract

Inflation can have a pronounced effect on the financial performance of a firm. This study makes inflation adjustments to a firm's cost of sales, depreciation, level of gearing and assets in line with International Accounting Standard 15 (IAS15) in order to calculate an inflation-adjusted version of the economic value added (EVA) measure. The study was conducted using data from South African industrial firms during a period characterised by highly variable inflation levels (1991-2005). The results indicate that during this period there were significant differences between the nominal and real values of the firms' EVAs.