What gets measured gets done for better or worse. Too many companies chase growth in earnings per share, only to find themselves employing too much capital at too low a rate of return and thereby eroding shareholder value. Economic Value Added(1) offers a beguiling solution: an easy-to-understand measure that recognizes improvements in earnings only to the extent that they exceed the cost of the capital employed to secure them.
Eminently sensible, but for one critical flaw: EVA discourages growth. The conceptual problems have been there all along; the empirical evidence is beginning to mount. At a time when renewing growth represents the major competitive challenge facing most companies, dependence on EVA can become a major obstacle to building shareholder value. Fortunately, there are better alternatives.
Author: Eric E. Olsen
Source: Boston Consulting Group (BCG)
Subjects: Finance, Management
- Capitalizing on Economic Value Added
[Archive.org URL] - Economic Value Added (EVA) [Archive.org URL]
- EVA and the Private Company [Archive.org URL]
- EVAluating Mergers and Acquisitions – How to avoid overpaying [Archive.org URL]
- Financial Tools Of Analysis: Economic Value Added (EVA) [Archive.org URL]
- Making the Metric Work [Archive.org URL]
- Managing for Value: EVA and Portfolio Strategy [Archive.org URL]
- MVPs of MVA [Archive.org URL]
- RAVE™: Integrated Value Management for Customer, Human Supplier and Invested Capital [Archive.org URL]
- The Devil’s in the Details [Archive.org URL]
- The Holy Grail of Shareholder Value Measurement [Archive.org URL]
- The Missing Link [Archive.org URL]
- The pitfalls of EVA [Archive.org URL]
- The Strategic Yardstick You Can’t Afford to Ignore [Archive.org URL]
- Time to Rethink Performance Metrics and Valuation Methods [Archive.org URL]
Click to Add the First »