Economic Value Added Calculator
Calculate Economic Value Added (EVA) to measure a company's true economic profit. EVA shows whether a company is creating or destroying shareholder value.
Financial Inputs
EVA Results
Economic Value Added:
$0.00
Capital Charge:
$0.00
Value Creation:
N/A
Performance Analysis
ROCE:
0.00%
Economic Profit Margin:
0.00%
Shareholder Value:
Business Insights
Performance Rating:
N/A
Efficiency Level:
N/A
Strategic Focus:
N/A
Understanding Economic Value Added
Economic Value Added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting the cost of capital from its operating profit. EVA shows whether a company is creating or destroying shareholder value.
EVA Formula and Calculation
Basic EVA Formula
- EVA = NOPAT - (Capital Employed × WACC)
- NOPAT = Net Operating Profit After Tax
- Capital Employed = Total Capital Invested
- WACC = Weighted Average Cost of Capital
Alternative Formula
- EVA = (ROCE - WACC) × Capital Employed
- ROCE = Return on Capital Employed
- Shows spread between return and cost
- Easier to interpret economically
Components of EVA
Key Elements
Understanding EVA components
NOPAT (Net Operating Profit After Tax)
- Operating profit adjusted for taxes
- Excludes interest and non-operating items
- Represents true operating performance
- Capital structure neutral
Capital Charge
- Cost of capital employed
- Capital Employed × WACC
- Opportunity cost of invested capital
- Minimum return required by investors
EVA Interpretation
Positive EVA
- Company creating shareholder value
- ROCE > WACC
- Earnings exceed cost of capital
- Profitable investment for shareholders
Negative EVA
- Company destroying shareholder value
- ROCE < WACC
- Earnings below cost of capital
- Value-destroying investment
EVA vs Accounting Profit
| Aspect | Accounting Profit | Economic Profit (EVA) | Key Difference |
|---|---|---|---|
| Cost of Capital | Not deducted | Explicitly deducted | EVA charges for capital use |
| Value Creation | May show profit while destroying value | Shows true value creation/destruction | EVA measures economic reality |
| Performance Measure | Historical accounting | Forward-looking economic | EVA focuses on future value |
EVA Applications
Performance Measurement
- Executive compensation
- Business unit evaluation
- Investment project assessment
- Strategic decision making
Value-Based Management
- Aligns management with shareholders
- Focuses on value creation
- Improves capital allocation
- Enhances long-term thinking
EVA Limitations
Calculation Challenges
- Requires accurate WACC calculation
- Capital employed measurement
- Accounting adjustments needed
- Short-term focus possible
Implementation Issues
- Complex to implement
- Resistance to change
- Potential manipulation
- Cost of implementation
Key Takeaways for Economic Value Added
- EVA measures whether a company is creating or destroying shareholder value
- EVA = NOPAT - (Capital Employed × WACC)
- Positive EVA indicates value creation, negative EVA indicates value destruction
- EVA differs from accounting profit by charging for the cost of capital
- EVA is used for performance measurement and executive compensation
- EVA promotes value-based management and better capital allocation
- EVA requires accurate calculation of NOPAT, capital employed, and WACC
- EVA can be improved by increasing NOPAT or reducing capital employed