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Economic Value Added Calculator

Measure whether profit exceeds the cost of the capital employed to generate it.

About Economic Value Added Calculator

Accounting profit ignores the cost of equity, so a business can report profit while still destroying value. EVA charges for all capital employed, which is why the spread over the cost of capital is the figure that matters rather than the profit itself. A division can grow profit and shrink EVA at the same time by consuming capital faster than it earns; only EVA exposes that.

Formula

Economic Value Added

EVA = net operating profit after tax − (capital employed × cost of capital)

capital charge
What the capital would have to earn just to break even
spread
Return on capital less the cost of that capital

Worked example

With the default values below, Economic Value Added Calculator returns Economic Value Added of $48,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Net operating profit after taxminimum 0
120,000
Capital employedminimum 0
800,000
Weighted average cost of capitalaccepts 0–100 %
9 %

Results

Economic Value Added
$48,000.00
Capital Charge
$72,000.00
Return on Capital Employed
15.00%
Spread Over Cost of Capital
6.00%
Verdict
Creating value — returns exceed the cost of capital

Step by step

  1. 1Values used
  2. 2Economic Value Added
  3. 3Economic Value Added= 48,000.00
  4. 4Capital Charge= 72,000.00
  5. 5Return on Capital Employed= 15.00
  6. 6Spread Over Cost of Capital= 6.00
  7. 7Verdict= Creating value — returns exceed the cost of capital

Assumptions and limits

  • The result is derived only from the 3 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation or compounding frequency into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

How is Economic Value Added calculated?

EVA = net operating profit after tax − (capital employed × cost of capital) Accounting profit ignores the cost of equity, so a business can report profit while still destroying value. EVA charges for all capital employed, which is why the spread over the cost of capital is the figure that matters rather than the profit itself.

Why does Economic Value Added matter?

A division can grow profit and shrink EVA at the same time by consuming capital faster than it earns; only EVA exposes that.

What values do I need to enter?

This calculator takes 3 inputs: Net operating profit after tax, Capital employed, Weighted average cost of capital. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.

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