EVA growth is what matters

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Economic Value Added > Best Practices > EVA growth is what matters

EVA growth is what matters
Peter Rubin
Improving EVA should be the goal of any major firm. After all, shareholders, who are providing the capital for the firm, have options to invest money elsewhere. To keep them onboard, managers must focus on growing the business when the returns are greater than the cost of capital, and on re-deploying capital when the returns are less than the cost of capital.
On top of this, they must try to improve returns on existing capital and arrange an optimal capital structure (debt/equity). How management precisely accomplishes the above is highly complex, depends on many interrelated and dynamic forces, and requires skillful decisions.
But in any case, EVA is the transparent system that is needed to ensure managers take these decisions responsibly and are accountable.
 

 
EVA over a Period of Time
Mehul Doshi , CxO / Board, India, SIG Leader
Peter you have highlighted a good post for organizing EVA improvement.
A point to add is EVA should not be looked from a short term perspective, because anything new or innovative would always incur a impact on EVA like research and development or risk taking to grow a unique formulae etc.
EVA should be balanced over a period of time as technology obsolesce in certain industry is not only crucial for growth and improvement, but also lead in the values and objectives of the company. Too much improvement of EVA hence from auditors view is organisation moving towards COST CONTROL or FREAKS and not taking adequate well calculated risk.
 

     
Special Interest Group Leader
Mehul Doshi
CxO / Board

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