About the Economic Value Added Calculator
Economic value added asks a blunt question about a set of accounts: after the operating profit has been taxed, is anything left once the providers of capital have been paid what they expect? The arithmetic is EVA = NOPAT - (Invested capital x WACC), where NOPAT is EBIT multiplied by one minus the tax rate. A firm can post a healthy accounting profit and still show a negative figure here, because the income statement never charges rent on the shareholder money sitting in the business.
Four numbers drive the answer. EBIT comes from the income statement before interest and tax. The tax rate should be the effective rate the company actually pays, not the headline statutory rate. Invested capital is usually total assets minus non interest bearing current liabilities, or equivalently net debt plus book equity. WACC is the blended cost of that capital, which you can build first in the WACC Calculator.
The output also reports return on invested capital and the spread between ROIC and WACC, because the spread multiplied by capital is exactly the EVA figure. A spread of two points on a large capital base beats a spread of ten points on a tiny one, which is why the currency amount matters as much as the percentage. Analysts often track the spread across several years to see whether a turnaround is real. If you only need the after tax operating profit on its own, the NOPAT Calculator stops at that step.
How to use
- Enter EBIT straight from the income statement, before interest and tax are deducted.
- Set the effective tax rate the company pays rather than the statutory headline rate.
- Type the invested capital figure, meaning net debt plus book equity at the start of the period.
- Add your WACC and read the EVA amount, the ROIC and the spread over the cost of capital.
Common questions
- What does a negative EVA mean?
- The company earned less than the cost of the capital tied up in it, so shareholders would have done better elsewhere at the same risk.
- Should invested capital be opening or closing?
- Opening capital is the usual convention because that money was available for the whole period. Some analysts average the opening and closing figures.
- Why is interest excluded from EBIT?
- Interest is a payment to capital providers, and the capital charge already covers it. Deducting it twice would understate the result.
- Is EVA the same as residual income?
- They share the same shape. EVA is the trademarked version that also applies accounting adjustments for items such as research spending and leases.