Financial Education

Economic Value Added, or EVA, is a proprietary residual income model developed by Stern Stewart & Company. In its basic formulation, EVA equals net operating profits after tax (NOPAT) less the dollar weighted average cost of capital ($WACC).

Given this formulation, the ways a management team could increase the firm’s EVA would be to:

• increase revenue
• minimize operating expenses needed to generate a given amount of revenue
• produce the same goods and services using less capital
• invest additional capital in opportunities that will earn more than the associated capital charge
• reduce the cost of capital

For more information, see all articles on: Valuation

See also:

Market Value Added (MVA)

Economic Value Added (EVA)

How Investor Awareness Affects Stock Valuation

Using Pension Disclosures to Understand the Underlying Economic Position

Economic Forecasting Using Leading Indicators