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 (NOPAT). It's particularly useful for assessing Australian companies' true economic profit.

2. How Does the Calculator Work?

The calculator uses the EVA equation:

Where:

• \( NOPAT \) — Net Operating Profit After Tax (in AUD)
• \( Invested\ Capital \) — Total capital invested in the business (in AUD)
• \( Cost\ of\ Capital \) — Weighted average cost of capital (as decimal)

Explanation: EVA shows whether a company is generating returns above its cost of capital, indicating true value creation.

3. Importance of EVA Calculation

Details: EVA is crucial for Australian businesses to assess performance, make investment decisions, and align management incentives with shareholder value creation.

4. Using the Calculator

Tips: Enter NOPAT and Invested Capital in AUD, Cost of Capital as decimal (e.g., 0.08 for 8%). All values must be valid (non-negative, cost between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: How is EVA different from accounting profit?
A: EVA considers the cost of all capital, not just debt, giving a clearer picture of true economic profit.

Q2: What's a good EVA for Australian companies?
A: Positive EVA indicates value creation. The magnitude depends on company size and industry.

Q3: How to calculate NOPAT for Australian businesses?
A: Start with EBIT, subtract Australian corporate tax (typically 30%), and adjust for non-operating items.

Q4: What cost of capital should Australian companies use?
A: Typically 8-12% for ASX-listed companies, depending on industry risk and capital structure.

Q5: Can EVA be negative?
A: Yes, negative EVA means the company isn't covering its cost of capital, destroying shareholder value.