Homonym: EVA (Evaluation)
EVA, or Economic Value Added, is a financial performance measure that helps businesses assess their profitability. It calculates the value a company generates beyond the required return of its shareholders. Essentially, if a company earns more than its cost of capital, it creates value; if not, it destroys value. This metric encourages companies to focus on long-term growth and efficient resource allocation.
In practice, EVA is determined by subtracting the cost of capital from the company's net operating profit after taxes. By using EVA, managers can make better decisions about investments and operations, ultimately driving the company towards greater financial success.