EVA Calculator
Calculate Economic Value Added (EVA) — the true economic profit a company generates after deducting the cost of all capital used. EVA tells you whether a business is creating or destroying shareholder value, which accounting profit alone cannot reveal.
What Is Economic Value Added?
Economic Value Added (EVA) — also called economic profit — measures the true economic profit of a business after deducting the cost of all capital used. Unlike accounting profit, which only deducts interest on debt, EVA also deducts the cost of equity — the return shareholders expect.
A company can report positive net income and still be destroying value if its return on capital is below its cost of capital. EVA is the metric that catches this. A positive EVA means the company is creating value; a negative EVA means it is destroying value — even if the income statement looks healthy.
EVA Formula
EVA = NOPAT − (Invested Capital × WACC)
Where:
- NOPAT — Net Operating Profit After Tax = EBIT × (1 − Tax Rate)
- Invested Capital — total debt + equity − cash (capital employed in the business)
- WACC — weighted average cost of capital
- Capital Charge — Invested Capital × WACC — the minimum return capital providers require
The formula can also be expressed in terms of spread:
EVA = (ROC − WACC) × Invested Capital
Where ROC = NOPAT ÷ Invested Capital. This version shows that EVA is positive only when return on capital exceeds WACC — that is, when the company earns more than its capital costs.
Worked Example
A company has NOPAT = $75,000, Invested Capital = $500,000, and WACC = 10%:
Capital charge = $500,000 × 0.10 = $50,000
EVA = $75,000 − $50,000 = $25,000
Return on capital = $75,000 ÷ $500,000 = 15%
Spread = 15% − 10% = 5%
EVA as % of capital = $25,000 ÷ $500,000 = 5%
Interpretation: for every $1 of capital invested, the company earns 15 cents of operating profit and pays 10 cents as the cost of that capital — a net gain of 5 cents per dollar. The company is a value creator.
EVA vs Accounting Profit
- Accounting profit (net income) — deducts interest on debt only. It ignores the cost of equity. A company with zero debt shows the same profit whether it earns 5% or 20% on equity.
- EVA — deducts the cost of both debt and equity. It shows whether the company earns more than all its capital providers require.
- Example — a company with $1M equity, $0 debt, and $50K net income shows positive profit. But if shareholders require 10%, the cost of equity is $100K. The company is actually destroying $50K of value per year — accounting profit hides this; EVA reveals it.
Frequently Asked Questions
What is a good EVA?
Any positive EVA is good — it means the company is creating value. Higher is better. Negative EVA means value destruction. EVA should be compared against the company's own history and industry peers. A company with steady, growing positive EVA is preferable to one with volatile EVA that occasionally spikes.
Why is EVA better than net income?
Net income ignores the cost of equity. A company can show positive net income for years while earning less than its cost of capital — slowly destroying shareholder value. EVA deducts the cost of all capital, so it directly answers the question that matters: is the company earning more than its capital costs? This is why EVA is widely used as an executive compensation metric.
How do I calculate NOPAT?
NOPAT = EBIT × (1 − Tax Rate). Start with operating profit (EBIT), then apply the tax rate. Example: EBIT = $100,000, tax rate = 25% → NOPAT = $100,000 × 0.75 = $75,000. This measures operating profit after tax, but before interest — removing the effect of capital structure.
What is invested capital?
Invested capital is the total amount of capital raised by the company from both debt and equity holders, minus cash. It represents the assets the company has funded to run its operations. Common calculation: Total Debt + Total Equity − Excess Cash. Some analysts use Total Assets − Non-Interest-Bearing Liabilities for a similar result.
Can EVA be negative?
Yes. Negative EVA means the company is earning less than its cost of capital — it is destroying shareholder value. This is common in start-ups (where investment is high and NOPAT is low), mature companies in declining industries, or companies with high WACC and low returns. Persistent negative EVA is a serious warning sign, even if the income statement shows profit.
Why is EVA used for executive compensation?
Because it aligns management's interests with shareholders. If management is rewarded for net income alone, they can grow the business with cheap debt and still look profitable while destroying value. If they are rewarded for EVA, they must generate returns above the cost of capital — which is what actually creates shareholder wealth. EVA-based compensation plans are used by many large companies (Siemens, Coca-Cola, Briggs & Stratton, and others).