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## Calculating Eva | Rate this: (4/5 from 2 votes) |

Calculating EVA or "Economic Value Added" is a worthwhile exercise when analyzing corporate financial data as it measures performance while taking into account capital investment required for the economic return. Calculating EVA in Excel can be facilitated by defining some functions which can then be referenced when making the analysis in the spreadsheet itself. The EVA calculation in its simplest form is:
Of course, the calculation of the Economic Profit and Invested Capital can be complicated in itself. It is not the purpose of this post to detail this but essentially Net Operating Profit After Tax (NOPAT) and Capital can be adjusted such as capitalizing expenses that are investments in nature and amortizing them over the life for which the benefits are expected to realized. Such expenses may include restructuring costs. (Sophisticated Excel templates exist to calculate these adjustments automatically, such as the Investment and Business Valuation template.) Nevertheless, there is no predefined Excel function to make the basic calculation. Furthermore calculations are needed for the Weighted Average Cost of Capital (WACC) and also for the Cost of Equity required by the WACC equation. The WACC calculation is:
Where: C _{d} = Pre-tax Debt RateC _{e} = Cost of Equityt = Corporate Tax Rate D = Market Value Debt E = Market Value of Equity The Cost of Equity (C _{e})_{ }calculation is:
β +L Where: R = Risk-free Rate β = Equity Risk Beta,M = Market Risk Premium L = Liquidity Premium To facilitate the calculation of these inputs and calculating EVA the following user defined functions can be copied into a module in the VBA editor for Excel. VBA Code:
These functions can then be accessed from the menu by choosing Insert >> Function and choosing them from User Defined category. Cell links with the required values can be used in these functions to help in calculating EVA when analyzing corporate finance data. | |||

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Posted by Excel Helper on |

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Posted by Oldie on |

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