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Economic Value Added (EVA) Calculator

Compute EVA as NOPAT minus capital charge to measure true economic profit and value creation.

Performance Metrics

Input operating data and capital structure

Formula: Economic Value Added

EVA = NOPAT - (Invested Capital × WACC)

NOPAT = EBIT × (1 - Tax Rate)

EVA measures a firm's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis.

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Market Value Added

Market-based Value

Complete Guide to Economic Value Added (EVA)

EVA is more than just a number; it is a corporate mindset. It asks the tough question: "Did we generate enough profit to cover the cost of the money we used?"

Table of Contents

EVA vs. Net Income

Traditional Accounting Profit (Net Income) ignores the cost of Equity Capital. It assumes shareholder money is "free".

EVA corrects this. It recognizes that shareholders could have invested their money elsewhere (Opportunity Cost). Therefore, a company only creates value if it covers both its Debt Cost (Interest) AND its Equity Cost.

The Three Pillars

NOPAT

The cash earning generated by operations, independent of capital structure. (EBIT - Taxes).

Capital

The total amount of cash invested in the business (Equity + Debt + Capitalized Leases, etc.).

WACC

The weighted average rate of return demanded by all capital providers (Lenders & Shareholders).

Strategies to Increase EVA

  1. Operational Efficiency: Increase NOPAT without using more capital (e.g., raise prices, cut costs).
  2. Asset Efficiency: Generate the same NOPAT with less capital (e.g., reduce inventory days, sell unused factories).
  3. Profitable Growth: Invest new capital only in projects where ROIC > WACC.
  4. Liquidate Value Destroyers: Divest units where ROIC < WACC.

Common Accounting Adjustments

To get "True Economic Profit", analysts often make 100+ adjustments to GAAP accounting. Common ones include:

  • R&D: Capitalize R&D as an asset (invested capital) rather than expensing it, as it builds future value.
  • Advertising: Treat brand building as an investment, not an expense.
  • Operating Leases: Convert off-balance sheet leases to debt (Capital) and depreciation (Expense).

Frequently Asked Questions

Common questions about EVA

Does calculating EVA improve stock price?

There is a high correlation. Companies that consistently grow EVA tend to see their stock price outperform, as MVA (Market Value Added) is essentially the present value of future EVA.

Why use NOPAT instead of Net Income?

Net Income includes interest expense. Since we deduct the cost of capital (which includes debt cost) separately in the EVA formula, using Net Income would double-count the debt cost.

Can a profitable company have negative EVA?

Yes! This is very common for "Empire Builders"—large companies with huge asset bases. They make millions in accounting profit, but their return on the billions of capital invested is pitiful (below WACC).

Is EVA suitable for startups?

Generally no. Startups usually have negative NOPAT and rely on future growth value. EVA is best for mature companies with established operations.

What is "EVA Momentum"?

It measures the change in EVA divided by sales. It tells you if the company is getting better at creating value, regardless of its size.

How does EVA differ from ROI?

ROI is a percentage (Ratio), while EVA is a dollar amount. EVA encourages managers to take all positive value projects, whereas ROI might discourage a project that lowers the average ROI even if it adds value.

What is the "Capital Charge"?

It is the "rent" a company pays for using investor funds. Formula: Invested Capital × WACC.

Can I lower WACC to boost EVA?

Yes, optimizing the capital structure (debt vs equity) to find the lowest WACC will instantly increase EVA, assuming operations remain stable.

Who invented EVA?

The concept has roots in economic profit (Alfred Marshall, 1890s), but it was popularized and trademarked as EVA by Stern Stewart & Co. in the 1980s.

How often does WACC change?

WACC changes with interest rates (Cost of Debt) and market risk premiums (Cost of Equity). It should be reviewed annually.

Summary

The EVA Calculator reveals the true economic profit of a business.

It helps distinguish between accounting profitability and actual value creation for shareholders.

Use it to align management incentives and evaluate capital allocation efficiency.

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Economic Value Added (EVA) Calculator

Compute EVA as NOPAT minus capital charge to measure true economic profit and value creation.

How to use Economic Value Added (EVA) Calculator

Step-by-step guide to using the Economic Value Added (EVA) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Economic Value Added (EVA) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Economic Value Added (EVA) Calculator is designed to be user-friendly and provide instant calculations.

Is the Economic Value Added (EVA) Calculator free to use?

Yes, the Economic Value Added (EVA) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Economic Value Added (EVA) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Economic Value Added (EVA) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.