The EVA Measurement Formula: A Primer on Economic Value Added (EVA)

EVA, for economic value added, is an estimate of a firm’s true economic profit. EVA computes profit according to economic principles and for managing a business, measuring its value and making peer comparisons, and not to follow accounting conventions.

At its essence, EVA is a simple three-line calculation – it is sales, less all operating costs, including taxes and depreciation, less a full weighted-average cost-of-capital interest charge on all the capital, or net assets, used in business operations.

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