What is Economic Value Added (EVA)?
Economic Value Added (EVA) is a performance metric that measures a company’s economic profit by deducting the full cost of capital (debt and equity) from net operating profit after tax. Positive EVA means the company has created value; negative EVA means it has destroyed value relative to investors’ required return.
How It Works
- Calculate net operating profit after tax (NOPAT).
- Determine invested capital (total assets minus non-interest-bearing current liabilities).
- Calculate the weighted-average cost of capital (WACC).
- EVA = NOPAT – (WACC × Invested Capital). A positive result signals value creation.
Saudi Context
Saudi PIF portfolio companies and Tadawul-listed groups increasingly use EVA alongside ROI to drive value creation and align executive incentives. EVA is also referenced by analysts evaluating Saudi banks (with SAMA-supervised capital structures) and large Vision 2030 projects.
Example
A Saudi industrial group has SAR 30 million NOPAT and SAR 200 million invested capital. With a WACC of 12% (SAR 24 million), EVA is SAR 6 million, signalling value creation for the year.