Shaun, thanks for the suggestion. I hadn’t seen these spreadsheets before–they’re terrific!
Here are my revised equations now, after doing a lot more thinking and research. And thanks to Marc for showing me that I was thinking about cost of debt all wrong.
$costofdebt: 0.65*Avg(Close(0,##CORPBBB), Close(0,##MORT30Y))/100
$wacc: MktCap/(EV+CashEquivQ)0.08 + DbtTotQ/(EV+CashEquivQ)$costofdebt + PfdDivA/(EV+CashEquivQ)
(I’m using EV + CashEquivQ for the sum of the market values of equity, debt, and preferred stocks.)
$nopat: OpIncTTM*0.65
(Ideally I’d be doing things like amortizing R&D expenses in calculating NOPAT, but heck.)
$eva: $nopat - $wacc*(AstTotQ - IsNA(PayablesQ,0) - IsNA(LiabCurOtherQ,0))
The most valuable thing I’ve learned from all of this is that the cost of equity is invariably greater than the cost of debt. That had never occurred to me before, and it has fundamentally changed my way of thinking about cost of capital. We focus so much here on how bad debt is, but we rarely consider how much cheaper it is than equity!
I’ve been reading some of what Joel Stern wrote about EVA. The man basically invented free cash flow in 1972, and then EVA a few years later. His brilliance is stunning.
As for what I can do with all of this, $eva/(Price*SharesFDQ) seems promising, as does $eva/AstTotQ. This is basically substituting EVA for Net Income in earnings yield and ROA. It seems to conform to the goal that Stern had when he came up with EVA as an alternative to EPS and called it “economic profit.”
What worries me, though, is that I haven’t found anyone else using these ratios . . .