Economic Value Added Definition
Economic Value Added Formula
Use the following formulas to calculate the EVA:
Economic Value Added Calculation
EVA = 10,000 – (50,000 * 10%) = 5,000
EVA is an estimate of a company’s true economic profit for the year. But it differs substantially from accounting profit. It depends on both operating efficiency and balance sheet management. Furthermore, without operating efficiency, operating profits will be low. In addition, without efficient balance sheet management, there will be too many assets, hence too much capital. In conclusion, it results in higher-than necessary capital costs.
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