Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
The absence of these however does not detract from the general value of the article, or from the proof of the premise. Furthermore, it could also be acknowledged that the factors described, other than EVA, are already well-known in accounting, and do not need a clear explication of both strengths and weaknesses.
Another factor in favor of the article and its premise is the fact that the authors acknowledge the shortcomings of EVA itself. The article for example includes a "Limitations" section that address these limitations. EVA for example does not take into account the current market value of assets, which could be misleading. Hence, it is difficult for EVA to project the future success of strategic goals and plans. Other factors such as market share and sales growth could better determine such future success. Furthermore, EVA only provides a global, one-year view of the operational performance of a company, which could be further misleading in terms of true value and performance throughout the year.
The fact that these shortcomings are taken into account provides a somewhat balanced view of the issue. In addition, the authors emphasize that EVA is best used with other, more traditional measures in order to provide an accurate measure of its value.
I agree that EVA is an extremely valuable and flexible tool for corporate managers and shareholders alike. Both managers and shareholders have a concern regarding the value of the company involved. The more actual profit that a company makes for example, the greater its value and the more benefit for all employees and shareholders involved.
In addition to its actual value in determining...
It provides managers with a drive to create value and wealth, as these are clearly visible when implementing EVA. In this way, the concept provides a platform for the implementation of better decision making and long-term thinking. By indicating value drivers and value destroyers, EVA can also be used as a tool for better company management in order to create value throughout the various departments within the company.
In their concluding remarks, the authors note that the implementation of EVA brings about a change of attitude among both managers and employees, based upon the fact that they are obliged to deliver value to their investors. This entails that managers as well as employees to think and behave like owners, and provides a framework for creating value for investors. The EVA system also addresses excess working capital in that a more long-term approach is taken to such capital. Like the authors, I believe that EVA is a beneficial system for companies.
Sources
BNET Editorial. 2009. Assessing Economic Value Added. Stern Stewart & Co. http://www.nait.org/jit/Articles/walk0299.pdf
Girotra, Arvind and Yadav, Suretra S. 2001. Economic Value Added (EVA): A New Flexible Tool for Measuring Corporate Performance. Global Journal of Flexible Systems Management, Jan-March Issue. http://findarticles.com/p/articles/mi_qa4012/is_200101/ai_n8931782
Walker, H. Fred. 1999. Cost Justification of Capital Equipment Using "Economic Value Added" Analysis. Journal of Industrial Technology, Vol. 15, No. 2, Feb-April. http://www.nait.org/jit/Articles/walk0299.pdf
Sources
BNET Editorial. 2009. Assessing Economic Value Added. Stern Stewart & Co. http://www.nait.org/jit/Articles/walk0299.pdf
Girotra, Arvind and Yadav, Suretra S. 2001. Economic Value Added (EVA): A New Flexible Tool for Measuring Corporate Performance. Global Journal of Flexible Systems Management, Jan-March Issue. http://findarticles.com/p/articles/mi_qa4012/is_200101/ai_n8931782
Walker, H. Fred. 1999. Cost Justification of Capital Equipment Using "Economic Value Added" Analysis. Journal of Industrial Technology, Vol. 15, No. 2, Feb-April. http://www.nait.org/jit/Articles/walk0299.pdf
However, EVA is neither as perfect as claimed by its advocates, nor is it the only performance measure that suggests a path to a superior stock return" (emphasis added) (p. 319). More importantly, though, while the economic value added measurement approach to financial performance may not be without its detractors, the scholarly literature is consistent in emphasizing the need for such initiatives for companies to remain competitive in an increasingly
Economic Value Added (EVA) Accounting Practice Although Economic Value Added (EVA) is not a new concept in economics and financial theory and is based on the 19th century concept of "economic profit," it has only been widely adopted recently by business firms as an accounting practice. In this paper we shall describe what EVA is, and look at its pros and cons from the point-of-view of the company adopting the practice
Instead, it aligns the interests of managers with those of shareholders" (Shieley 14). An editorial discussing the value of quality in a corporation's product, states that in the U.S., "quality' is too often a mantra without meaning - an empty promise... that bears no relation to the physical reality of the goods produced." The article goes on to suggest that there are inherent values in quality that can be factored
Economics Economic Value Added Economic Value Added is an analytical tool which was developed in 1982 by Joel Stern and G. Bennett Stewart and has been widely accepted as a means of measuring a company's real profitability. This tool is unique because it involves calculating "the firm's residual profitability, net of both the direct cost of debt capital and the indirect cost of equity capital." (Grant, p. 2) Debt capital can
Value-Based Management (VBM) is a management philosophy that aims to achieve superior results (Niedell, 1996). This process measures performance by the value that is returned to shareholders. Successful implementation of VBM requires a successful change in corporate culture, as well as the adoption of VBM concepts at all levels and functions within an organization. VBM includes an integration of performance measurement, compensation, strategic planning, training, and communication (Porter, 1986). The
Accounting Operating Leverage, Return on Investment, Economic value added and Net Profit Margin at Yum Brands A firms performance is often measured using ratios. There are many different ratios which are used, all indicating different types of performance measurement; four of these measures are operating leverage, return on investment (ROI), economic value added (EVA) and net profit margin. These all provide the ability to perform historical assessment to assess the trends or