Introduction ๐ยง
Hello, fiscal fanatics and balance sheet buffs! Ever wondered if your company is rolling in economic profit? Say hello to Economic Value Added (EVA)โthe formula that tells you if your companyโs activities have been rolling out the financial red carpet or just spinning their wheels!
The Mystical Equation of EVA ๐ฎยง
EVA is the net result when you subtract a cost-of-capital charge from a companyโs net operating profit after taxes (NOPAT). Itโs like squeezing economic juice from your profit lemon!
The Formula ๐กยง
Hereโs the magical EVA equation:
EVA = NOPAT - (Capital Employed * Cost of Capital)
Hold on, donโt panic just yet! Letโs break it down:
- NOPAT (Net Operating Profit After Taxes): This isnโt the profit after binge-watching tax tutorials. Itโs your profit after taxes, but before any interest (because who really wants more interest in a taxing subject, right?).
- Capital Employed: The total mandrakeโuhhโdollars plowed into the business.
- Cost of Capital: Think of this as the
