Economic Value Added (EVA)
A measure of a company's financial performance that calculates the value created in excess of the required return of the company's shareholders.
Implications
A measure of a company's financial performance that calculates the value created in excess of the required return of the company's shareholders, often used to assess the true profitability of a company after accounting for the cost of capital.
Example
Example: A manufacturing firm calculates its EVA to determine if its latest project generated returns above the cost of the capital used, confirming value creation beyond just accounting profit.
Related Terms
Different from net income, which is simply revenue minus expenses, EVA subtracts the cost of capital from net operating profit, providing a clearer picture of economic profit.
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