Economic Value Added (redirected from EVA)

Economic value added (EVA)

A method of performance evaluation that adjusts accounting performance for investors' required return on investment. Suppose a division produces a 12% return on capital invested. Given the risk of the division's business line, if investors would usually require 14% on capital invested for this level of risk, the division destroyed shareholder value by the EVA metric. This Stern-Stewart has a trade mark on this term.

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Economic Value Added

A company's after-tax earnings less its opportunity cost. The economic value-added measure is a metric of how well it has performed over a given period of time compared to how it could have performed.

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Economic Value Added (EVA)

What Does Economic Value Added (EVA) Mean?

A measure of a company's financial performance that is based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). Also called economic profit. The formula for calculating EVA is as follows: EVA = Net Operating Profit after Taxes (NOPAT) - (Capital × Cost of Capital).

Investopedia explains Economic Value Added (EVA)

This measure was devised by Stern Stewart & Co. and is used as a way to ascertain the true economic profit of a company.

Related Terms:
• Equity
• Market Value
• Net Operating Profit after Tax—NOPAT
• Return on Equity
• Return on Net Assets