Economic Value Added - EVA

AAA

DEFINITION of 'Economic Value Added - EVA'

A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "economic profit".)

The formula for calculating EVA is as follows:

= Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)

INVESTOPEDIA EXPLAINS 'Economic Value Added - EVA'

This measure was devised by Stern Stewart & Co. Economic value added attempts to capture the true economic profit of a company.

VIDEO

Loading the player...
RELATED TERMS
  1. Return On New Invested Capital ...

    A calculation used, either by a firm or investors, to determine ...
  2. Shareholder Value Added - SVA

    A value-based performance measure of a company's worth to shareholders. ...
  3. Market Value Added - MVA

    A calculation that shows the difference between the market value ...
  4. Value-Added Tax - VAT

    A type of consumption tax that is placed on a product whenever ...
  5. Factors Of Production

    An economic term to describe the inputs that are used in the ...
  6. Net Operating Profit After Tax ...

    A company's potential cash earnings if its capitalization were ...
RELATED FAQS
  1. What's the difference between economic value added (EVA) and producer surplus?

    The difference between economic value added (EVA) and producer surplus is that EVA measures the returns of a company above ... Read Full Answer >>
  2. What's the difference between economic value added (EVA) and total revenue?

    While economic value added, or EVA, is an internal management measure that compares a company's net operating profit to its ... Read Full Answer >>
  3. What's the difference between economic value added (EVA) and accounting profit?

    Economic value added (EVA) is a measure of a company's economic profit, which is the profit earned by a company minus the ... Read Full Answer >>
  4. What is the point of calculating economic value added (EVA)?

    Economic value added, or EVA, is a management performance measure that shows the profit earned by a company minus the cost ... Read Full Answer >>
  5. What is the difference between economic value added and market value added?

    Economic value added (EVA) is a performance measure developed by Stern Stewart & Co that attempts to measure the true ... Read Full Answer >>
  6. How do analysts and investors interpret Economic Value Added?

    Economic value added (EVA) is an important metric widely used in corporate finance to determine the amount of value a company ... Read Full Answer >>
Related Articles
  1. Options & Futures

    All About EVA

    Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added.
  2. Markets

    Understanding Economic Value Added

    Discover the simplicity of this important valuation metric. We reveal its underlying ideas and examine each of its components.
  3. Investing Basics

    Economic Value Added - EVA

    Learn about this metric that measures a company's financial performance based on its residual wealth.
  4. Bonds & Fixed Income

    Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center