Final answer:
Economic Value Added (EVA) is a financial performance measure that calculates the amount of value a company has added to its shareholders. It is determined by subtracting the company's after-tax operating profit from the amount of capital used to generate that profit, multiplied by the cost of capital.
Step-by-step explanation:
Economic Value Added (EVA) is a concept in business. It is a financial performance measure that calculates the amount of value a company has created or added to its shareholders. EVA is determined by subtracting the company's after-tax operating profit from the amount of capital used to generate that profit, multiplied by the cost of capital.
EVA = (Net Operating Profit After Tax - Capital * Cost of Capital)
For example, if a company generates a profit of $1 million using $10 million of capital and the cost of capital is 10%, then the EVA would be $1 million - ($10 million * 0.10) = $1 million - $1 million = $0.