In corporate finance, Economic Value Added (EVA) is an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders.
The Economic Value Added (EVA) equal to:
EVA = EBIT × (1-T) – WACC × Total Capital
Where:
EBIT = Earnings Before Interest and Taxes
T = Tax Rate
WACC = Weighted Average Cost of Capital
Total Capital = Total Assets
For example, if EBIT = 250,000 ; T = 25% ; WACC = 10%; Total Capital = 1,000,000;
The EVA equals 87,500, which means that the firm had created a wealth of 87,500 dollars to it's share holders
(EVA = 250,000 × (1-0.25) – 0.1 × 1,000,000)