1. What is Economic Value Added (EVA)?

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

2. How Does the Calculator Work?

The calculator uses the EVA formula:

Where:

• \( ROIC \) — Return on Invested Capital (decimal)
• \( WACC \) — Weighted Average Cost of Capital (decimal)
• \( Invested\ Capital \) — Total capital invested in the company (USD)

Explanation: The equation measures how much value is created above the required return of the company's investors.

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 and valuation.

4. Using the Calculator

Tips: Enter ROIC and WACC as decimals (e.g., 0.12 for 12%), and invested capital in USD. All values must be valid (capital > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's a good EVA value?
A: Positive EVA indicates value creation, while negative EVA indicates value destruction. Higher positive values are better.

Q2: How is ROIC calculated?
A: ROIC = Net Operating Profit After Taxes (NOPAT) / Invested Capital.

Q3: What's included in invested capital?
A: Typically includes equity, debt, and any other long-term funding sources.

Q4: How often should EVA be calculated?
A: Typically calculated quarterly or annually as part of financial performance analysis.

Q5: What are limitations of EVA?
A: Relies on accounting measures that can be manipulated, and requires accurate calculation of WACC.