Economic Value Added Calculator
Calculate EVA to measure true economic profit and value creation beyond traditional accounting metrics
Calculate Economic Value Added
Net Operating Profit After Tax (NOPAT)
Operating profit after deducting taxes (from income statement)
Invested Capital
Total capital invested in the business operations
Weighted Average Cost of Capital
Minimum return required by investors and creditors
Economic Value Added Analysis
EVA Performance Levels
Example Calculation
Startup Company
NOPAT: $750,000
Invested Capital: $1,600,000
WACC: 17%
Calculation Steps
1. Finance Charge: $1,600,000 × 17% = $272,000
2. EVA: $750,000 - $272,000 = $478,000
Positive EVA indicates value creation
Performance Analysis
ROIC: 46.9% (excellent)
Excess Return: +29.9%
Status: Strong value creation
Significantly exceeding investor expectations
Industry Context
EVA Interpretation Guide
EVA > 0: Value creation, exceeding cost of capital
EVA = 0: Breaking even, meeting investor expectations
EVA < 0: Value destruction, underperforming
Higher EVA indicates better capital efficiency
Compare EVA across time periods for trends
Consider industry context and business cycle
Understanding Economic Value Added (EVA)
What is Economic Value Added?
Economic Value Added (EVA) is a financial performance measure that calculates the true economic profit of a company by considering the cost of all capital used. Unlike traditional accounting profit, EVA accounts for the opportunity cost of equity capital.
Why EVA Matters
- •Measures true economic profit beyond accounting numbers
- •Considers cost of equity capital (often ignored)
- •Aligns management decisions with shareholder value
- •Better indicator of wealth creation
EVA Formula Components
EVA = NOPAT - (Invested Capital × WACC)
NOPAT: Net Operating Profit After Tax
Invested Capital: Total Assets - Current Liabilities
WACC: Weighted Average Cost of Capital
- NOPAT: Operating efficiency indicator
- Invested Capital: Total capital deployed
- Finance Charge: Cost of capital employed
- EVA: Economic profit after all capital costs
Example: $750K NOPAT - ($1.6M × 17%) = $478K EVA
EVA Applications
- 📊Performance Measurement: Assess managerial effectiveness
- 💰Investment Decisions: Evaluate project profitability
- 🎯Compensation: Link executive pay to value creation
Advantages of EVA
- ✓Comprehensive: Accounts for all capital costs
- ✓Objective: Reduces accounting manipulations
- ✓Strategic: Focuses on long-term value creation
Limitations
- ⚠️Capital Intensive: Less useful for service companies
- ⚠️Size Bias: Favors larger companies
- ⚠️Short-term: Single period measurement