Economic value added - part 1
Taught by Nick Drape · AI tutor support included
You'll learn what economic value added is, how it measures true business profitability, and why it matters for assessing shareholder wealth creation.
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In this lesson
- 0:00 Introduction to Economic Value Added
- 0:51 NOPAT and capital charge explained
- 2:09 Similarities to residual income
- 3:03 Calculating NOPAT from profit after tax
- 5:34 Depreciation adjustments in NOPAT
- 6:32 Interest adjustments for operating profit
- 8:16 Capital charge and net assets valuation
About this lesson
This video covers the core calculation—Nopat (net operating profit after tax) minus a capital charge—and walks through the adjustments needed to strip out accounting distortions like goodwill amortisation, R&D, and non-cash items. Understanding EVA is essential for Performance Management and helps you evaluate whether a company is genuinely creating economic profit beyond what investors require. Part 1 focuses on the theory and methodology; you'll see how to reconcile accounting profit to economic profit and calculate the capital charge using weighted average cost of capital and net asset replacement cost.
Duration: 10m
Transcript
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