1. What is Economic Value Added (EVA)?

Economic Value Added (EVA) is a measure of a company's financial performance based on residual wealth, calculated by deducting the cost of capital from operating profit. It shows the true economic profit of a company.

2. How Does the EVA Calculator Work?

The calculator uses the EVA formula:

Where:

• \( NOPAT \) — Net Operating Profit After Tax (USD)
• \( Capital \) — Invested capital (USD)
• \( WACC \) — Weighted Average Cost of Capital (decimal)

Explanation: EVA measures the value created above the required return of the company's shareholders. A positive EVA indicates value creation, while negative EVA indicates value destruction.

3. Importance of EVA Calculation

Details: EVA is important because it provides a clear picture of whether a company is creating or destroying shareholder value. It's used for performance measurement, valuation, and managerial decision-making.

4. Using the Calculator

Tips: Enter NOPAT and Capital in USD, WACC as a decimal (e.g., 0.08 for 8%). All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's a good EVA value?
A: A positive EVA indicates value creation. The higher the EVA, the more value is being created for shareholders.

Q2: How is NOPAT different from net income?
A: NOPAT excludes tax benefits from debt financing and non-operating items, providing a clearer view of operating performance.

Q3: What factors affect WACC?
A: WACC is influenced by the company's capital structure, cost of debt, cost of equity, and tax rate.

Q4: Can EVA be negative?
A: Yes, negative EVA means the company's returns are below its cost of capital, indicating value destruction.

Q5: How often should EVA be calculated?
A: EVA is typically calculated quarterly or annually as part of financial performance analysis.