What Is Economic Value Added (EVA)?


Understanding Economic Value Added (EVA)


The formula for calculating EVA is: Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted Average Cost of Capital (WACC)

Components of EVA


An equation for invested capital often used to calculate EVA is = Total Assets - Current Liabilities, two figures easily found on a firm's balance sheet. In this case, the formula for EVA is: NOPAT - (Total Assets - Current Liabilities) * WACC.


Benefits and Drawbacks of EVA

EVA assesses the performance of a company and its management through the idea that a business is only profitable when it creates wealth and returns for shareholders, thus requiring performance above a company's cost of capital.
