# Economic value added Canonical: https://web4.xpay.bi/en/wiki/wp-en-216476/ Language: en Published: 2026-10-25T22:43:45.362Z Updated: 2026-10-25T22:43:45.362Z In accounting, as part of financial statements analysis, economic value added (EVA) is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders. EVA is the net profit less the capital charge ($) for raising the firm's capital. The idea is that value is created when the return on the firm's economic capital employed excee ## Key facts ## Overview In accounting, as part of financial statements analysis, economic value added (EVA) is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders. EVA is the net profit less the capital charge ($) for raising the firm's capital. The idea is that value is created when the return on the firm's economic capital employed exceeds the cost of that capital, and equally if the return is less than the cost of capital, the firm is operating at a loss. The value of EVA can be determined by making adjustments to GAAP accounting. There are potentially over 160 adjustments, although in practice several key ones are mainly made, depending on the company and its industry. ## Calculation EVA is calculated as net operating profit after taxes (NOPAT) less a capital charge, the latter being the product of the cost of capital and the economic capital. The basic formula is: EVA = ( ROIC − WACC ) ⋅ capital = NOPAT − ( WACC ⋅ capital ) = NOPAT − capital charge \{\\displaystyle \{\\begin\{aligned\}\{\\text\{EVA\}\}&=(\{\\text\{ROIC\}\}-\{\\text\{WACC\}\})\\cdot \{\\text\{capital\}\}\\\\\[8pt\]&=\{\\text\{NOPAT\}\}-(\{\\text\{WACC\}\}\\cdot \{\\text\{capital\}\})\\\\\[8pt\]&=\{\\text\{NOPAT\}\}-\{\\text\{capital charge\}\}\\end\{aligned\}\}\} ## Comparison with other approaches Other approaches along similar lines include residual income valuation (RI) and residual cash flow. Although EVA is similar to residual income, under some definitions there may be minor technical differences between EVA and RI (for example, adjustments that might be made to NOPAT before it is suitable for the formula below). Residual cash flow is another, much older term for economic profit. In all three cases, money cost of capital refers to the amount of money rather than the proportional cost (% cost of capital); at the same time, the adjustments to NOPAT are unique to EVA. Although in concept, these approaches are in a sense nothing more than the traditional, commonsense idea of "profit", the utility of having a more precise term such as EVA is that it makes a clear separation from dubious accounting adjustments that have enabled businesses such as Enron to report profits while actually approaching insolvency. Other measures of shareholder value include: Added value Market value added: the difference between the current market value of a firm and the capital contributed by investors Total shareholder return ## Process-based costing In 2012, Mocciaro Li Destri, Picone and Minà proposed a performance and cost measurement system that integrates the EVA criteria with process-based costing (PBC). The EVA-PBC methodology allows one to implement the EVA management logic not only at the firm level but also at lower levels of the organization. EVA-PBC methodology plays a role in bringing strategy back into financial performance measures. ## See also Business valuation Enterprise value Opportunity cost Value added ## Further reading G. Bennett Stewart III (2013). Best-Practice EVA. John Wiley & Sons. G. Bennett Stewart III (1991). The Quest for Value. HarperCollins. Erik Stern. The Value Mindset. Wiley. Joel Stern and John Shiely (2001). The EVA Challenge. Wiley. ISBN 9780471405559. Al Ehrbar (1988). EVA, the Real Key to Creating Wealth. Wiley. E. Knappek. An hitchhiker guide to having fun times with Eva. Limited Edition. ## External links Stern Value Management, Proprietary Tools A Reading List on EVA/Value Based Management from Robert Korajczyk Economic Value Added (EVA), Prof. Aswath Damodaran EVA-WACC Tree Model Infographic Visual.ly Economic Value Added: A simulation analysis of the trendy, owner-oriented management tool, Timo Salmi and Ilkka Virtanen, 2001 The Origins of EVA Chicago-Booth magazine New Media video, by Florencia Roca: Interview to Joel Stern What is EVA? EVA Calculator ## Sources - Economic value added · Wikipedia: https://en.wikipedia.org/?curid=216476 Source: Wikipedia contributors — https://en.wikipedia.org/?curid=216476&oldid=1367653005 Licence: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation notice: Reformatted for XPay; the source may be abridged, restructured or translated. Consult the cited revision for the original.