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Economic value added - Definition and Overview |
| Related Words: Budget, Canny, Commercial, Easy, Economy, Financial, Fiscal, Low, Mercantile, Moderate, Modest, Monetary, Nominal |
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In the field of finance, economic value added (or EVA) is a way to determine the value created for the shareholders of a company.
The basic formula is :
- EVA = NOPAT - (NOA * WACC)
Where :
NOPAT = Net operating profit after taxes
NOA = Net operating assets
WACC = Weighted average cost of capital
Shareholders of the company will receive a positive value added when the return from the equity employed in the business operations is greater than the cost of that capital; see Working capital management. Any value obtained by employees of the company or by product users is not included in the calculations.
The underlying concept has first been introduced by Schmalenbach, but the way EVA is used today has been developed by Stern Stewart & Co. which also is owner of the registered trademark EVA.
See also
External links
- EVA valuation tutorial (http://www.valuatum.com/valuation/valuation_tutorial_tiedostot/frame.htm#slide0132.htm) from valuatum.com
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