"The EVA is a tool to underline the shareholders value." Comment.

Economic value added (EVA) is the after tax operating profits generated by a business minus the cost of the capital deployed to generate that cash flow. Representing real profit versus accounting profit, EVA underlines shareholder value, which is the main target of leading companies' strategies. There are two key components to EVA. The net operating profit after tax (NOPAT) and the capital charge, which is the amount of capital times the cost of capital. In other words, it is the total pool of profits available to provide cash return to those who provided capital to the firm. The capital charge is the product of the cost of capital times the capital tied up in the investment. In other words, the capital charge is the cash flow required to compensate investors for the riskiness of the business given the amount of capital invested. On the one hand, the cost of capital is the minimum rate of return on capital required to compensate debt and equity investors for bearing risk-a cut-off rate to create value and capital is the amount of cash invested in the business, net of depreciation. EVA = (Operating Profit) - (Capital Charge) EVA = NOPAT - (Cost of Capital * Capital)