Economic Value Added Spreadsheet

ECONOMIC VALUE ADDED





Company tax rate 30%

Common stock outstanding 90000

Market price per stock $ 20.00





INCOME STATEMENT



EBIT $ 1,000,000.00

Interest on debt $ 220,000.00

Interest on preferred stock $ 84,000.00

Profit before taxes $ 696,000.00

Taxes $ 208,800.00

Net income $ 487,200.00

Tax adjustment on interest $ 212,800.00

Income adjusted for the tax $ 700,000.00



Weighted Average Cost of Capital 11.93%



CAPITAL STRUCTURE

Amount Cost of Capital Average cost

Common stock $ 1,800,000.00 18% 7.200%

Preferred stock $ 700,000.00 12% 1.307%

Debt $ 2,000,000.00 11% 3.422%

Total capital $ 4,500,000.00



ECONOMIC VALUE ADDED

$ 163,200.00

HOW TO CALCULATE ECONOMIC VALUE ADDED (EVA)





What is Economic Value Added (EVA)?



Economic Value Added is a calculation used to determine a company's economic profit, based on net operating profit after tax (NOPAT).

In this calculation, NOPAT is adjusted for the company's cost of investment in capital.



EVA is primarily used by companies to manage overall profitability and to evaluate capital investment decisions.









How is Economic Value Added calculated?





Step 1 - Calculate Net Operating Profit after Tax (NOPAT)



Refer to the Income Statement for NOPAT calculation and to update values.



Income Statement Year 1 Year 2 Year 3 Year 4 Year 5

Sales $ 8,529,880 $ 10,321,155 $ 11,198,453 $ 11,982,345 $ 12,701,285

- Cost of Goods Sold $ (6,260,932) $ (7,575,728) $ (8,219,664) $ (8,795,041) $ (9,322,743)

- Operating Expenses $ (1,219,115) $ (1,335,150) $ (1,370,529) $ (1,406,071) $ (1,442,016)

- Taxes $ (301,523) $ (434,524) $ (540,380) $ (695,531) $ (770,937)

= NOPAT $ 748,310 $ 975,753 $ 1,067,880 $ 1,085,702 $ 1,165,589





Step 2 - Calculate Capital Charges



Refer to the Balance Sheet for Capital Charges calculation and to update values.



Invested Capital (Including Stock and Debt) x the Weighted Average Cost of Capital



Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5

Common Stock $ 800,000 $ 800,000 $ 800,000 $ 800,000 $ 800,000

+ Preferred Stock $ 200,000 $ 200,000 $ 20