EVA is net operating profit after taxes (or NOPAT) less a capital charge, the latter being the product of the cost of capital and the economic capital. The basic formula is:

\mathit{EVA} \ = \ ( r - c ) \cdot K \ = \ \mathit{NOPAT} - c \cdot K

where:

r = { \mathit{NOPAT} \over K } , is the Return on Invested Capital (ROIC);

c \, is the weighted average cost of capital (WACC);

K \, is the economic capital employed;

NOPAT is the net operating profit after tax, with adjustments and translations, generally for the amortization of goodwill, the capitalization of brand advertising and other non-cash items.

EVA Calculation: Z

EVA = net operating profit after taxes – a capital charge [the residual income method]

therefore EVA = NOPAT – (c × capital), or alternatively

EVA = (r x capital) – (c × capital) so that

EVA = (r-c) × capital [the spread method, or excess return method]