WHAT IS EVA? – ECONOMIC VALUE ADDED – its meaning, calculation and advantages

• Economic Value Added (EVA) is a financial metric used to
• measure of a company’s ability
• to generate value for its shareholders after accounting for the cost of capital.

The formula for EVA is:

EVA = Net Operating Profit After Taxes (NOPAT) – Capital Charge

Or

EVA = Capital employed (ROI – Ke)

1. EVA aligns the interests of shareholders by focusing on value creation.
2. It provides a holistic view of a company’s financial performance. (Sachin Education Hub)
3. EVA encourages efficient capital allocation and investment decisions.
4. It helps in identifying areas where a company can improve profitability. 
5. It promotes a long-term perspective by considering the cost of capital.
6. EVA is a useful tool for measuring a company’s economic profitability

(Notes by Sachin Arora)

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