Economic Value Added (EVA) is an internal performance measure that quantifies the economic profit generated by a firm above and beyond its total cost of capital. Core Mechanics

• Accounting Profit vs. Economic Profit: Traditional net income only counts debt interest as a capital expense. EVA charges the firm for utilizing equity capital as well.
• Wealth Creation Signal: A positive EVA confirms management is actively adding shareholder value. A negative EVA reveals the company is destroying capital, even if it reports positive accounting net income.
• Capital Normalization: Making adjustments to traditional accounting figures (e.g., adding back research and development expenses or capitalizing operating leases) to find the true capital invested in operations.