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Economic Value Added Presentation Ajay Soni

Economic Value Added (EVA) is a financial metric that measures a company's value creation beyond the required return for shareholders, calculated as NOPAT minus the product of capital and cost of capital. It aligns management goals with shareholder interests, aids in performance assessment, and supports investment decisions. However, EVA can be complex to calculate and may not capture all strategic value, thus it should be used alongside other financial metrics.

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22 views7 pages

Economic Value Added Presentation Ajay Soni

Economic Value Added (EVA) is a financial metric that measures a company's value creation beyond the required return for shareholders, calculated as NOPAT minus the product of capital and cost of capital. It aligns management goals with shareholder interests, aids in performance assessment, and supports investment decisions. However, EVA can be complex to calculate and may not capture all strategic value, thus it should be used alongside other financial metrics.

Uploaded by

mylife9907885861
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ECONOMIC VALUE ADDED (EVA)

Financial management
Presented by: Ajay soni
Date: 13/05/2025
WHAT IS EVA?
 Definition: EVA = Net Operating Profit After
Taxes (NOPAT) – (Capital × Cost of Capital)
 Purpose: Measures value creation beyond the

required return of company’s shareholders.


 Quote: “EVA is a true economic profit of the

company.”
KEY COMPONENTS OF EVA
 NOPAT: Earnings before interest after taxes
 Capital Employed: Total funds used for

operations
 Cost of Capital: Weighted average cost of

debt and equity


 Formula: EVA = NOPAT – (Capital × WACC)
WHY EVA MATTERS
 • Aligns management goals with shareholder
interests
 • Helps assess business unit performance

 • Useful in investment decision-making

 • Encourages efficient capital use


EXAMPLE CALCULATION
 Given:
 NOPAT = $500,000

 Capital = $2,000,000

 WACC = 10%

 EVA = 500,000 – (2,000,000 × 0.10) =


$300,000
 Interpretation: The company created $300K

in value over cost of capital.


LIMITATIONS OF EVA
 • Complex to calculate (requires
adjustments)
 • Can vary based on accounting policies

 • May not capture all strategic value


CONCLUSION
 • EVA provides a clearer view of value
creation
 • Helps align strategic goals with financial

performance
 • Should be used alongside other financial

metrics

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