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Economic Value Added (EVA)
For informational and educational purposes only • Not investment advice.
Apple
iPhone, services, devices
Estimated Fair Value
Stock price: $333.69
Fair value below stock price
EVA estimates a company's fair value based on the economic profit it generates after accounting for the full cost of invested capital. It measures value creation beyond the return required by investors.
Discounted EVA Composition
This chart shows each projected Economic Value Added amount and the Terminal EVA, discounted to present value using WACC.
Key Valuation Metrics
Notes
EVA Formulas
What is Economic Value Added (EVA)?
Economic Value Added (EVA) measures whether a company generates operating profit above the required return on the capital invested in its business. Unlike accounting profit, EVA recognizes that both shareholders and lenders require a return on the capital they provide.
A company creates economic value when its Net Operating Profit After Tax (NOPAT) exceeds the Capital Charge on its Invested Capital. The present value of future EVA is then combined with Invested Capital to estimate the value of the operating business.
How This EVA Valuation Works
Economic Value Added starts with the capital invested in the business, measures whether after-tax operating profit exceeds the required return on that capital, forecasts future economic profit, discounts it back to today, and combines it with invested capital to estimate fair value.
Key Model Assumptions
• Current Revenue and EBIT use trailing twelve-month (TTM) values when available, with the latest annual values used as a fallback. Current EBIT is used to calculate NOPAT and current EVA.
• Forecast EBIT Margin gradually converges toward a normalized margin based on the median of up to the five most recent valid historical EBIT margins.
• WACC represents the required return on Invested Capital.
• The Risk-Free Rate is based on the U.S. 10-Year Treasury yield published by the Federal Reserve Board.
• Revenue Growth gradually converges toward the Terminal Growth Rate over the forecast period.
• Forecast EBIT Margin gradually converges toward a normalized margin based on the median of up to the five most recent valid historical EBIT margins.
• Forecast Invested Capital is estimated from Revenue using the Sales-to-Capital Ratio.
• Positive EVA indicates economic value creation, while negative EVA indicates economic value destruction.
Step 1 — Calculate Invested Capital
Invested Capital represents the capital employed in Apple's operating business and therefore the capital on which investors require a return.
The model estimates Invested Capital from Total Assets after removing Cash and Operating Current Liabilities. Short-Term Debt remains part of financing capital and is therefore excluded from Operating Current Liabilities. For Apple, Invested Capital is estimated at $184.5B.
Step 2 — Calculate Current NOPAT
$155.9B × (1 − 17.3%) = $128.9B
NOPAT represents Apple's current after-tax operating profit before financing costs.
The model calculates NOPAT from trailing twelve-month (TTM) EBIT and the effective Tax Rate. For Apple, NOPAT is estimated at $128.9B.
Step 3 — Calculate WACC
The Weighted Average Cost of Capital (WACC) represents the required return demanded by shareholders and lenders.
The model uses WACC to calculate the Capital Charge on Invested Capital and to discount future EVA back to present value. For Apple, WACC is estimated at 10.4%.
Step 4 — Calculate Economic Value Added (EVA)
The Capital Charge represents the required return on Invested Capital and is calculated by applying WACC to Invested Capital.
EVA measures the operating profit remaining after this Capital Charge is deducted from NOPAT. For Apple, this results in positive EVA of $109.8B.
When ROIC exceeds WACC, the company creates economic value. When ROIC is below WACC, economic value is destroyed.
EVA Value Creation
NOPAT compared with the capital charge
Step 5 — Forecast Future EVA
The model projects Economic Value Added (EVA) for each forecast year by estimating future NOPAT and the capital charge on forecast invested capital. Each year's Forecast EVA is then discounted back to present value using WACC.
The complete year-by-year forecast, including projected revenue, EBIT, NOPAT, invested capital, capital charge, Forecast EVA, and Present Value of Forecast EVA, is shown in the EVA Projection Table.
Under the current assumptions, the present value of forecast EVA contributes $1066.1B to the company's valuation.
Step 6 — Calculate Terminal EVA
Terminal EVA represents the economic value expected to be created after the explicit 10-year forecast period. The final Forecast EVA is grown at the Terminal Growth Rate and capitalized using WACC.
The resulting Terminal EVA is then discounted back to present value. If the final Forecast EVA is not positive, the model assigns no Terminal EVA.
Step 7 — Calculate Fair Value Per Share
Operating Value is calculated by adding current Invested Capital, the Present Value of Forecast EVA and the Present Value of Terminal EVA.
Operating Value is then adjusted for Net Debt or Net Cash to determine the Equity Value attributable to common shareholders.
Equity Value is divided by Shares Outstanding to calculate the estimated Fair Value per Share. For Apple, this results in $158.95 per share.
EVA Projection Table
The table below shows the projected operating performance, invested capital, NOPAT, capital charge and Economic Value Added used in the valuation. It illustrates how future EVA is forecast and discounted to present value.
Tax Rate: 17.3%
Sales-to-Capital Ratio: 2.53x
Forecast Invested Capital = Forecast Revenue / Sales-to-Capital Ratio
Capital Charge = WACC × Invested Capital
EVA = NOPAT − Capital Charge
| Year | Revenue Growth | Revenue | EBIT Margin | EBIT | NOPAT | Invested Capital | Capital Charge | EVA | PV EVA |
|---|---|---|---|---|---|---|---|---|---|
| Y1 | 13.1% | $528.1B | 33.4% | $176.4B | $145.9B | $208.8B | $21.7B | $124.2B | $112.5B |
| Y2 | 12.7% | $595.4B | 33.3% | $198.2B | $163.9B | $235.4B | $24.4B | $139.5B | $114.5B |
| Y3 | 12.0% | $667.0B | 33.1% | $220.8B | $182.6B | $263.7B | $27.4B | $155.2B | $115.5B |
| Y4 | 11.1% | $741.0B | 32.9% | $243.4B | $201.3B | $292.9B | $30.4B | $170.9B | $115.2B |
| Y5 | 10.0% | $815.0B | 32.6% | $265.4B | $219.5B | $322.2B | $33.4B | $186.0B | $113.6B |
| Y6 | 8.7% | $886.1B | 32.2% | $285.6B | $236.2B | $350.3B | $36.3B | $199.8B | $110.5B |
| Y7 | 7.3% | $951.2B | 31.9% | $303.1B | $250.6B | $376.0B | $39.0B | $211.6B | $106.1B |
| Y8 | 5.8% | $1006.8B | 31.5% | $316.8B | $261.9B | $398.0B | $41.3B | $220.7B | $100.2B |
| Y9 | 4.2% | $1049.3B | 31.0% | $325.6B | $269.3B | $414.8B | $43.0B | $226.3B | $93.1B |
| Y10 | 2.5% | $1075.5B | 30.6% | $328.9B | $272.0B | $425.2B | $44.1B | $227.9B | $84.9B |
| Total Present Value of Forecast EVA | $1066.1B | ||||||||
| Terminal Value | 2.5% | $2966.8B | $1105.8B | ||||||
| The Terminal EVA Value is $2966.8B before being discounted back to its present value. | |||||||||
| Present Value of Terminal EVA | $1105.8B | ||||||||
| Estimated Equity Value = Invested Capital + PV Forecast EVA + PV Terminal EVA − Net Debt $184.5B + $1066.1B + $1105.8B − $21.9B = $2334.6B | |||||||||
| Estimated Fair Value Per Share = Equity Value / Shares Outstanding $2334.6B / 14.69B shares = $158.95 | |||||||||