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Finance
Economic Value Added
A measure of a company's true profit after subtracting the cost of the capital used to generate that profit.
EVA was popularised by Stern Stewart. It forces managers to think about whether they are earning more than the cost of capital. Positive EVA means value is being created for shareholders.
It's profit after paying the invisible bill for using investors' money.
Real world: A company makes £10 million accounting profit but used £80 million of capital that investors expected to earn 12% on (£9.6 million). Economic Value Added is only £400,000 — the real economic profit.
💡 EVA is the true bottom-line profit after paying investors what they expect.