How to use the EVA calculator
- Operating profit. Choose to enter operating income (EBIT) and a tax rate, or a NOPAT figure you have already adjusted. Leave out one-off items such as restructuring charges and gains on asset sales.
- Invested capital in millions of dollars: debt plus shareholders’ equity, usually minus cash the business does not need. The ROIC calculator shows the options for treating cash.
- WACC: the blended return lenders and shareholders require. The WACC calculator builds it from market values.
The results show EVA, the capital charge, ROIC and the spread over WACC. The table and chart show how EVA changes if the cost of capital is higher or lower than you assumed.
The EVA formula
NOPAT = EBIT × (1 − t)
EVA = (ROIC − WACC) × Invested capitalNOPAT is net operating profit after tax, t the tax rate and ROIC = NOPAT ÷ invested capital. WACC × invested capital is the capital charge: the return investors require in money terms.
The two forms are identical. The first shows EVA as profit minus a bill for capital; the second shows it as a margin on capital, which makes clear that both the spread and the amount invested matter.
A worked example
Company A earns operating income of $1,200M and pays tax at 21%, so NOPAT is $948.00M. It uses $8,000M of invested capital, and its investors require 9% a year. The capital charge is $720.00M.
EVA is $228.00M: the company earned that much more than its investors required. ROIC is 11.9%, a spread of +2.85% over WACC.
If EVA stayed at this level forever, it would be worth $2.53B today (EVA ÷ WACC). That figure is a rough, no-growth estimate of the market value the business adds above the capital invested in it.
Why profit growth is not the same as value creation
Accounting profit charges for debt through interest but treats shareholders’ money as free. EVA charges for both, which changes how growth looks. Compare three versions of Company A:
| Case | NOPAT | Invested capital | EVA |
|---|---|---|---|
| The example | $948.00M | $8,000M | $228.00M |
| $2,000M more capital, returns kept up | $1.19B | $10,000M | $285.00M |
| $2,000M more capital, weaker returns | $1.03B | $10,000M | $127.00M |
In the third case NOPAT rises from $948.00M to $1.03B, and earnings per share might well grow. Yet EVA falls to $127.00M, because the new capital earns less than its cost. That is the argument for judging managers on EVA rather than on profit growth: the capital charge makes every extra dollar invested visible.
How sensitive EVA is to WACC
The capital charge is a large number, so small changes in the cost of capital swing EVA. At a 7% WACC, Company A’s EVA would be $388.00M; at 11% it would be $68.00M. Every point of WACC moves EVA by 1% of invested capital. When you compare EVA across companies or years, use a consistent method for WACC, or compare the ROIC − WACC spread instead.
A lower operating income makes the same point from the other side: with EBIT of $800M, NOPAT of $632.00M no longer covers the capital charge and EVA is -$88.00M.
What this calculator does not include
Stern Stewart’s EVA adjusts the accounts before calculating NOPAT and capital: for example, capitalizing research and development and marketing as investments, adding back past goodwill write-offs and smoothing one-off charges. This calculator uses the figures you enter as they are, which is the simpler economic profit version. EVA measures one period and can penalize long-term investment in the years before it pays off. Book invested capital can be distorted by old assets, write-offs and buybacks, which is why very high ROIC figures deserve a closer look. Track EVA over several years rather than judging a single one.