Introduction 📚
Hello, fiscal fanatics and balance sheet buffs! Ever wondered if your company is rolling in economic profit? Say hello to Economic Value Added (EVA)—the formula that tells you if your company’s activities have been rolling out the financial red carpet or just spinning their wheels!
The Mystical Equation of EVA 🔮
EVA is the net result when you subtract a cost-of-capital charge from a company’s net operating profit after taxes (NOPAT). It’s like squeezing economic juice from your profit lemon!
The Formula 💡
Here’s the magical EVA equation:
EVA = NOPAT - (Capital Employed * Cost of Capital)
Hold on, don’t panic just yet! Let’s break it down:
- NOPAT (Net Operating Profit After Taxes): This isn’t the profit after binge-watching tax tutorials. It’s your profit after taxes, but before any interest (because who really wants more interest in a taxing subject, right?).
- Capital Employed: The total mandrake–uhh–dollars plowed into the business.
- Cost of Capital: Think of this as the
