What is Economic value Added Analysis (EVA)?

Its a method of measuring of shareholders wealth.

Economic value added attempts to capture the true economic profit of a company. It is a performance measure.

Economic value added (EVA) is also referred to as economic profit.

EVA could be used for the following:

• Setting company goals
• Performance management
• Bonus determination
• Communication to shareholders and investors in simple way
• Manager motivation
• Corporate valuation
• Capital budgeting

The formula for EVA is:

EVA = Net Operating Profit After Tax - (Capital Invested x WACC)

Economic Valued Added is based on the idea that business must cover both OPERATING COSTS and CAPITAL COSTS

EVA = Net Operating Profit After Taxes - (Capital * Cost of Capital)

It is a measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis).