Economic Value Added

Accounting profit charges for debt through interest but never charges for equity, so a company can report a healthy profit while destroying value; EVA fixes that by deducting the cost of all capital. A positive EVA means the business earned more than its providers of capital required, which is the only definition of value creation that survives scrutiny. It is the rupee-denominated version of the spread between ROIC and WACC, and it scales with size, which makes it useful for judging whether growth is worth having. Its practical difficulty is that both invested capital and cost of capital require judgement, so EVA figures are comparable within a company over time rather than between companies.