Economic Value Added Template

Economic Value Added Template

This economic value added template guides you to compute EVA using the amount of capital invested, WACC, and NOPLAT.

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Economic Value Added (EVA) or Economic Profit is a measure based on the Residual Income technique that serves as an indicator of the profitabilityProfitability RatiosProfitability ratios are financial metrics used by analysts and investors to measure and evaluate the ability of a company to generate income (profit) relative to revenue, balance sheet assets, operating costs, and shareholders' equity during a specific period of time. They show how well a company utilizes its assets to produce profit of projects undertaken. Its underlying premise consists of the idea that real profitability occurs when additional wealth is created for shareholders and that projects should create returns above their cost of capitalWACCWACC is a firm’s Weighted Average Cost of Capital and represents its blended cost of capital including equity and debt..

EVA adopts almost the same form as residual income and can be expressed as follows:

EVA = NOPAT – (WACC * capital invested)

Where NOPAT = Net Operating Profits After Tax

WACC (Weighted Average Cost of CapitalWACCWACC is a firm’s Weighted Average Cost of Capital and represents its blended cost of capital including equity and debt.) = Ke*E/ (E+D) + Kd (1-t)*D/ (E+D)

Capital invested = Equity + long-term debt at the beginning of the period

and (WACC* capital invested) is also known as finance charge

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