Economic Value Added - EVA

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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.

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