Economic Value Added

Economic Value Added (EVA) is a performance metric that estimates a firm's economic profit, or the value created in excess of the required return of the company's investors (both equity and debt holders). Developed and trademarked by the consulting firm Stern Stewart & Co., EVA aims to provide a more accurate picture of a company's profitability than traditional accounting measures like net income. The formula is typically expressed as: EVA = Net Operating Profit After Taxes (NOPAT) – (Total Invested Capital * Weighted Average Cost of Capital (WACC)). Its mission as a concept is to align employee and management decisions with shareholder wealth creation.