EVA
2 July 2021
EVA (or Economic Value Added) is a measure of a company’s economic profit. The indicator was developed and copyrighted by Stern-Stewart. Central to the EVA measure is the idea that companies have to take into account the cost of capital (for both equity and debts) before they can make a judement on whether the company has added real economic value or not.
The argument is that here is an opportunity cost of capital, i.e. instead of investing into a specific company or business venture, investors could put their money in other places such as Government bonds, the bank or equity markets). In order to identify true economic value it is therefore important to deduct the cost of capital (opportunity costs).
EVA = NOPAT – (C x K)
Where:
NOPAT is Net Operating Profit after Tax
C is the Weighted Average Cost of Capital (WACC), which represents the rate that a company is expected to pay on average to all its security holders to finance its assets
K is the economic capital employed
This indicator is included in the book: Key Performance Indicators – the 75+ measures every manager needs to know, which contains an in-depth description of this KPI, as well as practical advice on data collection, calculations, target setting, and actual usage.
Related Articles
Sex And Intimacy In The Generative AI Era
Sex and technology have long been intertwined – millions of us use dating apps to find partners, and some of the earliest commercial online activity revolved around pornography.[...]
Generative AI Sucks: Meta’s Chief AI Scientist Calls For A Shift To Objective-Driven AI
In a landscape where generative AI is hailed as the frontier of technological innovation, Yann LeCun, Chief AI Scientist at Meta, presents a contrarian viewpoint that challenges the status quo.[...]
Instacart Harnesses Generative AI To Revolutionize Grocery Delivery Experience
Grocery delivery and pickup service Instacart is not shy about adopting new technologies. So, it makes sense that the company has embraced generative AI across the business.[...]
Responsible AI: Why Privacy Is An Essential Element
Today, people often talk about “responsible” AI use, but what do they really mean?[...]
The Amazing Ways IKEA Is Using Generative AI
Global furniture retailer IKEA has long been at the forefront of tech-driven retail innovation.[...]
Generative AI Is Coming To Your Home Appliances
Across all industries, organizations are rapidly embracing generative AI. Among them, makers of home appliances like fridges and ovens.[...]
Sign up to Stay in Touch!
Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity.
He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations.
He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.
Bernard’s latest book is ‘Generative AI in Practice’.
Social Media