What does "Economic Value Added" (EVA) measure?

Economic Value Added (EVA) is a financial performance measure that assesses a company's profitability after accounting for the cost of capital. It is calculated as the net operating profit after taxes minus the capital charge (which reflects the cost of capital multiplied by the capital employed). By focusing on residual wealth, EVA provides insight into how much value a company generates beyond the required return of its investors.

This measure is particularly useful because it encourages companies to undertake projects that will yield returns exceeding their cost of capital, thus aligning management decisions with shareholder interests. EVA serves as a tool for performance evaluation, as it highlights whether a company is creating or destroying value.

The other options do not accurately capture the essence of EVA. For example, market share is not directly related to financial performance in terms of value creation. Similarly, the comparison of total assets to liabilities provides a snapshot of a company's leverage but does not assess the efficiency or effectiveness of capital usage. Lastly, looking at stock price relative to earnings is a valuation metric but does not inherently measure the value created for shareholders after accounting for capital costs.