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Economic Value Added Calculator

EVA Formula

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dollars
decimal
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1. What is Economic Value Added Calculator?

Definition: This calculator computes EVA, the value created above the required return on invested capital.

Purpose: Helps assess a company’s true economic profit, aiding investment and performance analysis.

2. How Does the Calculator Work?

The calculator uses the formula:

EVA Formula:

\( EVA = NOPAT - (IC \times WACC) \)
Where:
  • \( NOPAT \): Net Operating Profit After Tax (dollars)
  • \( IC \): Invested Capital (dollars)
  • \( WACC \): Weighted Average Cost of Capital (decimal)

Steps:

  • Enter NOPAT, invested capital, and WACC.
  • Subtract the finance charge (IC × WACC) from NOPAT.
  • Display EVA with 2 decimal places.

3. Importance of EVA

Calculating EVA is crucial for:

  • Profitability Insight: Shows value beyond capital costs.
  • Investment Decisions: Identifies companies creating shareholder value.
  • Performance Evaluation: Measures management efficiency in capital use.

4. Using the Calculator

Example 1: NOPAT = $100,000, IC = $500,000, WACC = 0.06:

  • NOPAT: $100,000
  • Invested Capital: $500,000
  • WACC: 0.06
  • EVA: \( 100,000 - (500,000 \times 0.06) = 100,000 - 30,000 = 70,000 \) dollars
  • Result: \( 70,000.00 \) dollars

Example 2: NOPAT = $80,000, IC = $300,000, WACC = 0.05:

  • NOPAT: $80,000
  • Invested Capital: $300,000
  • WACC: 0.05
  • EVA: \( 80,000 - (300,000 \times 0.05) = 80,000 - 15,000 = 65,000 \) dollars
  • Result: \( 65,000.00 \) dollars

Example 3 (Negative EVA): NOPAT = $50,000, IC = $400,000, WACC = 0.08:

  • NOPAT: $50,000
  • Invested Capital: $400,000
  • WACC: 0.08
  • EVA: \( 50,000 - (400,000 \times 0.08) = 50,000 - 32,000 = 18,000 \) dollars
  • Result: \( 18,000.00 \) dollars

5. Frequently Asked Questions (FAQ)

Q: What does a positive EVA indicate?
A: It shows the company generates value above its capital cost.

Q: How is WACC determined?
A: Use our WACC calculator or check financial reports for the weighted average cost.

Q: What if EVA is negative?
A: It suggests the company isn’t covering its capital costs, indicating inefficiency.

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