EVA Calculator

Why EVA Matters

Economic Value Added (EVA) measures the true economic profit of a company after accounting for the cost of capital. Unlike accounting profit, EVA answers: "Are we earning more than our investors expect?"

How to Use This Calculator

• NOPAT: Net Operating Profit After Tax (EBIT × (1 − Tax Rate)).
• Invested Capital: Total capital used in operations (equity + debt).
• WACC: Weighted Average Cost of Capital (your hurdle rate).
• Click “Calculate EVA” to see if your business is creating or destroying value.

Formula Used

Example: NOPAT = $250,000, Capital = $1.2M, WACC = 8.5% →
Cost of Capital = 1,200,000 × 0.085 = $102,000
EVA = 250,000 − 102,000 = $148,000 → Value Created

Interpreting the Results

Real-World Applications

• Executives: Evaluate performance beyond net income
• Investors: Compare companies on true profitability
• Managers: Incentivize value-creating decisions
• M&A: Assess if an acquisition will add value
• Divisions: Measure performance of business units

Tips to Improve EVA

• ✅ Increase NOPAT via pricing, cost control, or sales growth
• ✅ Reduce invested capital by selling unused assets or improving turnover
• ✅ Optimize capital structure to lower WACC (but avoid excessive debt)
• ✅ Exit low-return projects that drag down EVA
• ✅ Focus on high-margin, high-turnover businesses

Advantages Over Net Income

EVA is superior to net income because it:

• ✅ Accounts for the cost of equity (not just debt)
• ✅ Encourages efficient use of capital
• ✅ Aligns management incentives with shareholder value
• ✅ Prevents false profits from over-investment

Companies like Coca-Cola and Amazon use EVA to guide strategic decisions.

Limitations of EVA

• ❌ Requires accurate WACC estimation
• ❌ Can be complex to calculate for divisions
• ❌ May discourage long-term R&D investments
• ❌ Less useful for asset-light or startup companies

Use EVA alongside ROIC, Free Cash Flow, and NPV for best results.