What does Economic Value Added (EVA) help to estimate?

Economic Value Added (EVA) is a financial performance measure that captures the true economic profit of a firm. It represents the value created in excess of the required return of the company's shareholders. EVA is calculated by taking a company's net operating profit after taxes and subtracting the capital charge, which is the product of the company’s capital and its cost of capital. This measure helps assess how well a company is generating value not just in nominal terms, but in relation to the cost of the capital it uses to operate. By focusing on the performance that contributes to shareholder value, EVA serves as a clear indicator of a firm's efficiency and effectiveness in utilizing its resources.

Other options address different aspects of financial performance but do not directly relate to the concept of EVA, which specifically focuses on measuring economic profit in relation to capital costs. Total revenue refers to all income generated before expenses, while the cost of capital relates more to financial structure than to profitability. Expense management efficiency, while important for overall budget controls, does not capture the essence of economic profit as EVA does through its emphasis on net operating profit relative to capital costs.