Economic Value Added or EVA, is an estimate of a firm's economic profit – being the value created in excess of the required return of the company's investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm's capital.
The idea is that value is created when the return on the firm's
economic capital employed is greater than the cost of that capital. This
amount can be determined by making adjustments to GAAP
accounting. There are potentially over 160 adjustments that could be
made but in practice only five or seven key ones are made, depending on
the company and the industry it competes in.
Source :
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