Economic Value Added (EVA) 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 after accounting for the cost of capital.

EVA Inputs
$
Net Operating Profit After Tax
$
Total capital invested in the business
%
Weighted Average Cost of Capital
Additional Options

What Is Economic Value Added (EVA)?

Economic Value Added (EVA) is a financial performance measure that shows whether a company is creating value after covering the cost of the money invested in its business. It considers not only the company's operating profit but also the cost of the capital used to generate that profit.

A company may report a profit in its financial statements but still fail to create economic value if the cost of its capital is higher than the returns it earns. This is why EVA provides a different perspective from ordinary accounting profit.

The cost of capital is the cost a company pays to obtain funds from sources such as loans and shareholders' investments. Economic Value Added compares the company's operating profit after taxes with the cost of the capital used to run the business.

Economic Value Added Formula

Economic Value Added (EVA) measures how much value a company creates after covering the cost of the capital used to run its business. It helps investors and business owners understand whether a company is earning enough profit to justify the money invested in it.

The Economic Value Added formula compares a company's operating profit after tax with the cost of the capital it uses.

    EVA = NOPAT – (Invested Capital × WACC)

Here, invested capital multiplied by WACC represents the capital charge, or the cost of using the company's invested funds.

Understanding Each Component

  • NOPAT (Net Operating Profit After Tax): The company's operating profit after taxes, before deducting financing costs such as interest expenses. It shows how much profit the business generates from its operations after tax.
  • Invested Capital: The total capital invested in the company's operating activities. It generally includes funds provided by shareholders and lenders that are used to run and grow the business.
  • WACC (Weighted Average Cost of Capital): The average cost a company pays to finance its operations through equity and debt, weighted according to each source's share of total financing.
  • Capital Charge: The cost of using the invested capital. It is calculated by multiplying invested capital by WACC.

Example of Economic Value Added

Suppose a company has the following financial figures:

Component Value
NOPAT $500,000
Invested Capital $2,000,000
WACC 10%
Capital Charge $200,000

Using the formula:

    EVA = $500,000 – ($2,000,000 × 10%)

    EVA = $500,000 - $200,000

    EVA = $300,000

The company has an Economic Value Added of $300,000, which means it generated $300,000 in operating profit beyond the estimated cost of its invested capital.

How to Use the EVA Calculator

The Economic Value Added (EVA) Calculator helps you determine whether a business is generating enough operating profit to cover the cost of its invested capital. Follow these simple steps to calculate EVA using your company's financial information.

  1. Enter NOPAT ($): Enter your Net Operating Profit After Tax. This is the company's operating profit after taxes, before deducting financing costs.
  2. Enter Invested Capital ($): Enter the total capital invested in the business, including the capital used to support its operations.
  3. Enter WACC (%): Enter the Weighted Average Cost of Capital as a percentage. This represents the average cost of the company's debt and equity financing.
  4. Show Calculation Breakdown (Optional): Select this option if you want to view the step-by-step calculation breakdown, provided by the calculator.
  5. Calculate EVA: Once you have entered all the required values, click the Calculate button to see the Economic Value Added result.

Frequently Asked Questions (FAQs)

A positive EVA is generally considered good because it means a company earns more than the cost of the capital invested in its operations. A higher positive EVA indicates that the business is creating more economic value for its shareholders.

Yes, EVA can be negative. This happens when a company's net operating profit after taxes (NOPAT) is lower than its capital costs. Negative EVA indicates that the company is not earning enough to cover the cost of the capital invested in its business.

Accounting profit measures revenue minus expenses according to accounting rules. EVA goes a step further by deducting the cost of invested capital from net operating profit after taxes. This helps determine whether a company is generating returns above its cost of capital.

To calculate EVA, you generally need three financial inputs: net operating profit after taxes (NOPAT), invested capital, and the weighted average cost of capital (WACC). These figures help determine whether a business is generating value beyond its capital costs.

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