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In corporate finance, Economic Value Added (EVA), is an estimate of a firm's economic profit â being the value created in excess of the required return of the company's investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm's capital.The idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital.This amount can be determined by making adjustments to GAAP accounting.he idea is that value is created when the return on the firm's economic capital employed is greater than the cost of that capital.
A positive EVA means the firm is generating a return to invested capital that exceeds the direct (i.e. interest) and opportunity cost of that invested capital; a negative EVA means that the firm did not generate a sufficient return to cover the cost of its debt and equity capital. Table 1. Calculating EVA EBIT (Earnings Before Interest and Taxes) Less Interest Equals Net Income Less Cost of Equity Capital Equals EVA Improving EVA What insight does EVA provide about financial performance of a business and how to improve it? First, like any financial measure, the trend may be more valuable than the absolute value of EVA. Even if EVA is positive, a declining EVA suggests that financial