This document provides an overview of Economic Value Added (EVA). EVA measures the incremental difference in a company's rate of return over its cost of capital, showing whether operating profit is enough to cover total capital costs. A positive EVA means the company is generating value from invested funds, while a negative EVA shows funds are not being used effectively. EVA is calculated by taking net operating profit after taxes and subtracting the product of invested capital and the weighted average cost of capital. EVA can be used to assess company and management performance by quantifying the required return on invested capital and determining if projects exceed that minimum threshold.

1. Week 7- Performance Evaluation
Economic Value Added - EVA
Presented by:
Marther Bore
Vincent Kimutai
Caroline Melly

2. EVA Simplified
Incremental difference in the rate of return over a company's cost of capital.
Measures whether the operating profit is enough compared to the total costs of
capital employed
The value generated from funds invested in a business
Negative EVA means the company is not generating value from the funds invested
into the business
Positive EVA shows a company is producing value from the funds invested in it.

3. Calculating EVA
EVA= Net Operating Profit After Taxes (NOPAT) - Invested Capital
* Weighted Average Cost of Capital (WACC)
Capital invested - the amount of money used to fund a specific
project
WACC - average rate of return a company expects to pay its
investors; the weights are derived as a fraction of each financial
source in a company's capital structure

4. Benefits of EVA
Used to assess company and management performance
Acts as a performance indicator
Note: The goal of EVA is to quantify the charge, or cost, for
investing capital into a certain project, and then assess whether it
is generating enough cash to be considered a good investment. The
charge represents the minimum return that investors require to
make their investment worthwhile. A positive EVA shows a project
is generating returns in excess of the required minimum return.