Economic Value Added Matrix

The Economic Value Added (EVA) Matrix is a strategic tool used in business and finance to assess the value a company generates from its invested capital. By comparing the net operating profit after taxes (NOPAT) with the capital charge, the matrix helps in identifying areas of high and low economic value creation, guiding better investment and operational decisions.

At a very high level, the Economic Value Added Matrix is used in the context of business, finance, performance management.

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What is the Economic Value Added Matrix?

A visual explanation is shown in the image above. The Economic Value Added Matrix can be described as a matrix with the following quadrants:

  1. High EVA, High Capital Utilization: Areas generating significant economic value with substantial capital investment. Example: A highly profitable manufacturing plant.
  2. High EVA, Low Capital Utilization: Areas creating high economic value with minimal capital investment. Example: A successful digital marketing campaign.
  3. Low EVA, High Capital Utilization: Areas not generating sufficient economic value despite heavy capital investment. Example: An underperforming R&D project.
  4. Low EVA, Low Capital Utilization: Areas with low economic value creation and minimal capital investment. Example: A small, low-impact administrative function.

What is the purpose of the Economic Value Added Matrix?

The Economic Value Added (EVA) Matrix is a powerful analytical tool designed to measure the true economic profit of a company. Unlike traditional financial metrics, EVA focuses on the value created above the required return of the company’s shareholders. It is calculated by subtracting the capital charge (the cost of capital multiplied by the invested capital) from the net operating profit after taxes (NOPAT).

The matrix is typically divided into four quadrants, each representing different levels of EVA and capital utilization:

  • High EVA, High Capital Utilization: This quadrant indicates areas where the company is generating significant economic value with substantial capital investment. These are typically high-performing business units or projects that should be further invested in.
  • High EVA, Low Capital Utilization: This quadrant represents areas where the company is creating high economic value with minimal capital investment. These are often highly efficient operations that can serve as models for other parts of the business.
  • Low EVA, High Capital Utilization: This quadrant highlights areas where the company is not generating sufficient economic value despite heavy capital investment. These areas may require strategic re-evaluation or divestment.
  • Low EVA, Low Capital Utilization: This quadrant shows areas with low economic value creation and minimal capital investment. These are generally low-priority areas that may not require immediate attention but should be monitored for potential improvement.

By analyzing the EVA Matrix, companies can make informed decisions about where to allocate resources, how to improve operational efficiency, and which areas to divest or enhance. It serves as a comprehensive tool for performance management and strategic planning.


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What templates are related to Economic Value Added Matrix?

The following templates can also be categorized as business, finance, performance management and are therefore related to Economic Value Added Matrix: Product-Market Matrix, 4 Ps Marketing Mix Matrix, AI Capability-Value Proposition Alignment Matrix, AI Innovation-Value Alignment Matrix, AI Maturity Matrix, AI-Value Proposition Alignment Matrix, AI-Value Proposition Matrix, AIDA Marketing Matrix. You can browse them using the menu above.

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