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EVA

Economic Value Added, a measure of the superiority of the return a company is able to realize on invested capital above the baseline return expected by the investment community. The formula is
EVA   =   NOPAT - ( C x Kc )
where C is the amount of capital a company plans to invest in a project, and Kc is the cost of capital, i.e. the return rate expected by investors. Positive EVA means the project will add value for shareholders; negative EVA means they would be better off if management just gave them the money as a dividend.

EVA is analogous to earnings; but where earnings expenses debt financing only, the C x Kc term in EVA is expensing the cost of all capital, equity as well as debt.


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