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Anonym A
am 25. Feb. 2025
Global
Frage zu

Why do we calculate with EBIT and not NOPAT when calculating EVA = EBIT - CE*WACC?

Hi, my accounting background isn't very strong and my question is: 
in Question 2A We are being asked to calculate the EVA (Economic value added)
EVA = EBIT - CE*WACC
But why not 
EVA = NOPAT- CE*WACC?

Is it because EBIT is being provided in the study and NOPAT isn't?

Thanks in advance!

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Beste Antwort
am 25. Feb. 2025
Ex-BCG Principal & Senior Recruiter in Germany | 300+ real recruiting interviews at BCG | Free 15min intro call

Hi there, 

you are technically right. EVA reflects the true economic profit/return to both debt and equity holders. Hence, we need to account for taxes while not considering the interest (as this is the debt holders return) --> NOPAT 

However, you will encounter in many Consulting interviews that it is rather about testing the overarching concept than being precisely right. Hence, for simplicity they use EBIT here. If I would interview you, I would give you bonus points for pointing out that NOPAT would be better though ;) 

Keep in mind that a lot of interviews are more about being 80:20 but fast :) 

Best, 
Sebastian 

Alessa
Coach
am 25. Feb. 2025
xMcKinsey & Company | xBCG | xRB | >400 coachings

Hey there ?, we typically use EBIT in the EVA calculation because it represents the operating profit before the effects of financing and taxes, allowing for a more consistent comparison of operational performance. If you used NOPAT, which is after-tax profit, you'd have to account for tax effects separately, and it might not align as cleanly with the capital charge (CE * WACC) provided. In many studies, they use EBIT simply because that's the figure available and it keeps the analysis straightforward. Best, Alessa ?

Pedro
Coach
am 28. Feb. 2025
Most Senior Coach @ Preplounge: Bain | EY-Parthenon | RB | Principal level interviewer | PEI Expert | 30% in October

You are technically correct. EBIT is an approximation, whereas NOPAT is the right way to calculate.