Economic Value Added
Also called: EVA, economic profit
Economic value added is after-tax operating profit minus a charge for the capital employed. It formalises an uncomfortable point: a company reporting a healthy accounting profit while earning below its cost of capital is destroying value. Because it charges managers for the balance sheet they use, EVA-based compensation changes behaviour around working capital and asset-heavy projects.
Formula
EVA = NOPAT − (Invested capital × WACC)