Economic Value Added Calculator
With CalcoPolis, you can calculate Economic Value Added of any company.
Table of Contents
- What is EVA?
- How can this Economic Value Added Calculator help you?
- Evaluate the performance of your company
- Compare your company with competitors
- Prepare the business plan
- How to calculate Economic Value Added?
- EVA formula
- Alternative EVA formula using EBIT
- Example
- Pros and cons of EVA
- Advantages of EVA
- Disadvantages of EVA
What is EVA?
Economic Value Added (EVA) is a metric of the economic performance of a company. EVA allows an investor to measure a value created from investments made into the company, by simply calculating the difference between the company's net profit after tax and financing cost.
This value could be later used to compare the company with other companies or other investment types.
Unlike other efficiency metrics like ROI, ROIC or ROCE - Economic Value Added is calculated as an amount value, not the percentage.
Characteristics of EVA
- EVA is a metric of company's profitability;
- Company is considered profitable if the net profit exceeds the cost of rising capital;
- EVA take positive or negative value since companies may not always be profitable;
- The result of EVA calculator is presented as an amount value;
- The EVA is best suited for the capital-intensive industries.
How can this Economic Value Added Calculator help you?
This EVA calculator makes it easy to calculate Economic Value Added. You don’t need to remember the EVA formula - just fill the form above and press calculate to find the result.
This simple online tool will help you:
Evaluate the performance of your company
The EVA indicator gives a precise answer about a company's profitability. In many cases the straight answer in dollar amount is much better than percentage value, because even a high percentage may translate to a low amount in dollars if the company is small.
Compare your company with competitors
You can use EVA metric to compare your business performance to other competitors or industry averages.
Prepare the business plan
If rising capital is crucial to the success of your venture you should double check the feasibility of your plan. Leveraged companies tend to grow faster, but they also are under greater risk of bankruptcy.
The good business plan should consider the financing cost and make sure that future margin and profits will cover it.
How to calculate Economic Value Added?
Calculating Economic Value Added is very simple once you obtain all the needed information.
- Calculate your Net Profit After Tax by deducting income tax from your net profit.
- Find out the total value of capital invested into the company.
- Work out Weighted Average Capital Costs
- Substitute all the values in to the formula below.
EVA formula
Economic Value Added can be calculated using several formulas, all of them are derived from the standard equation from EVA definition.
EVA = NOPAT – (Invested capital * WACC)
Where:
- NOPAT - Net Profit After Tax or EBIT
- Invested Capital - The total amount the equity invested into the company
- WACC - Weighted Average Capital Cost is a metric representing average interest expense.
Alternative EVA formula using EBIT
If you wish to base your calculations on EBIT instead of NOPAT you may use the following equation:
EVA = EBIT * (1 - tax_rate) - (Invested capital * WACC)
Example
Let’s calculate the Economic Value Added of a hypothetical manufacturing company M Corp Inc.
M Corp Inc. raised $1,000,000 from the bank in the form of the loan with 6% interest rate.
The net profit after tax generated by the company equals $80,000.
EVA = $80,000 - $1,000,000 * 6% = $20,000
Turns out the investment paid off and the company has generated the profit for the owners.
Pros and cons of EVA
Advantages of EVA
- EVA gives the clear picture of company’s economic performance;
- EVA takes into account all costs the company needs to cover, while other accounting techniques may ignore;
- It focuses on real profits rather than just net profit.
Disadvantages of EVA
- EVA may be misleading in case of companies with high share of intellectual property like software companies;
- Since EVA result is not a ratio, but fixed amount it is not suited for comparing companies different in size.
Authors
Created by Lucas Krysiak on 2022-06-10 12:27:51 | Last review by Mike Kozminsky on 2022-09-15 13:57:48