Explain the concept of "Economic Value Added". The Net Operating Profit After Tax (NOPAT) of a company is ₹ 2,400 crores. The capital employed in the company is ₹ 8,000 crores and weighted average cost of the capital of

"Economic Value Added (EVA) is the net operating profit minus an appropriate charge for the opportunity cost of all capital invested in an enterprise or project. It is an estimate of true economic profit, or amount by which earnings exceed or fall short of the required minimum rate of return investors could get by investing in other securities of comparable risk. EVA is net operating profit after tax (NOPAT) less capital charge. EVA = NOPAT- (Invested Capital x Weighted Average Cost of Capital (WACC)) Calculation of EVA in the given problem NOPAT= ₹ 2400 crores Weighted average cost of capital (WACC) = 15% Invested Capital = ₹ 8,000 crores EVA = ₹ 2400 crore - (₹ 8,000 crore x 15%) = ₹ 1,200 crore