Economic Value Added (EVA)
Profit exceeding cost of capital; true economic profit.
Formula
EVA = Operating Profit − (Capital Employed × Cost of Capital)
Real World
Apple consistently generates positive EVA because its operating profit far exceeds the return investors require — in 2023 it earned roughly $114bn operating profit against a capital cost fraction of that, signalling genuine value creation.
Exam Focus
If asked to 'assess' EVA, contrast a positive result (value creation) with a positive accounting profit that may still destroy shareholder value.
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