CAPITAL USE & FINANCIAL PERFORMANCE
Economic Value Added (EVA)
Economic value added measures after-tax operating profit less a charge for the capital employed. In a simplified formulation, EVA = NOPAT − invested capital × cost of capital.
ECONOMIC VALUE ADDED IN PRACTICE
- Define operating profitSpecify after-tax profit and adjustments.
- Calculate the capital chargeUse defined invested capital and cost of capital.
- Interpret the resultReview value creation with service and risk.
Use the agreed units, actual records and approved procedures for your operation.
A WORKED EXAMPLE
120 profit less 100 capital charge = 20.
In a simplified annual example, after-tax operating profit is 120 currency units, invested capital is 1,000 and cost of capital is 10%. The capital charge is 100, leaving EVA of 20. These invented figures illustrate the measure, not an investment recommendation.
WHAT THIS MEANS FOR YOUR QUOTE
Agree the requirement before comparing quotes
Use the actual shipment, stock and service requirements. Record the billing unit, included work and responsibility for exceptions.
A LITTLE MORE CONTEXT
Questions about Economic Value Added
Is EVA the same as accounting profit?
No. It subtracts a capital charge.
Is EVA identical to cash flow?
No. They are different measures.
Can inconsistent periods distort it?
Yes. Align the inputs and method.
Source & example notes
NYU Stern, Aswath Damodaran: economic value added.
Sources provide background on the linked topic. Product documentation describes a particular implementation; confirm the rules, contract and procedures that apply to your operation.
Quantities, costs and scenarios are illustrative, not operating targets, approved handling instructions or guarantees. Source guidance reviewed 22 October 2026.
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