Economic Value Added EVA

Posted in Finance, Accounting and Economics Terms, Total Reads: 1101
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Definition: Economic Value Added EVA

It is Market Cap (equity) + Value of preference shares + Value of Debt – cash – cash equivalents.

It can also be seen as the cost of takeover during acquisition. EVA does not factor the changes in value due to difference in capital structure.  Therefore EVA can be used when there is comparison of 2 companies who have significant difference in their capital structure.

EVA can also be written as NOPAT (-) c*K

Here NOPAT= Net operating profit after tax

C= Weighted average cost of capital (WACC)

K= Capital employed.

 

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