Economic value added
Economic value added is an economic-profit measure commonly calculated as net operating profit after tax less a capital charge based on invested capital and the weighted average cost of capital. Adjustments may be specified to improve consistency with economic performance; they should not be applied mechanically without evidence. Match the profit, tax, capital and timing bases. A positive EVA indicates return above the specified capital charge, not a guarantee of market-value growth or liquidity.
Worked example
Adjusted NOPAT is $150,000 and opening invested capital $1 million at 10% WACC. EVA is $150,000 − $100,000 = $50,000.
Common mistake
Do not use profit after interest and then deduct a full WACC charge again, or assume every proposed adjustment is always required.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | APM | Direct | September 2026–June 2027 |