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Economic Profit
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:
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).