economic value added

EVA, economic value added, is a phrase coined by the Stern Stewart consultancy to describe its definition of economic profit, or economic rent. EVA is the value created over and above the expectations of investors and reflected in the market valuation of the enterprise. (Stern, 2004, pp 4-5).

A firm creating EVA is creating value. One that does not create EVA is destroying value.

In the EVA framework, all costs are measured, including the cost of equity, measuring, in effect, all factors of production. In other words, EVA is the ""capital employed multiplied by the difference between the return on capital vs. the cost of that capital."" EVA incorporated into resource usage decisions aligns the manager's interests with those of the owners. (Stern, 2004, pp 44-45).