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Economic Value Added (EVA) is described as a popular, but static, approach to investment decisions used by many firms to determine

whether an investment contributes positively to the owners wealth (Gitman, 2009, p. 428). Specifically, EVA is another approach that can be used when determining whether an investment-proposed or existing (Gitman, 2009, p. 428) will produce a positive impact to owners wealth. Basically, EVA is a measurement tool to strengthen companies return on capital investments (Leahy, 2000, p. 1). Although many companies regard EVA as the key to creating corporate wealth, many more companies have balked at the idea (Leahy, 2000, p. 1). One company that is considered a learner organization, Knape & Vogt Manufacturing, introduced EVA because their focus had been toward earnings rather than their capital. William Dutmers, president, chairman and CEO stated that the first step was to train employees that capital is not free (Leahy, 2000, p. 2). He further stated that Employees also realized that if we were spending capital and not getting a return greater than the cost of that capital, then we werent creating value (Leahy, 2000, p. 2). In 1999, the acquired their first acquisition using the EVA principles and as a result reduced capital costs and inventory, thus improving their gross margins. Another company, Briggs and Stratton Corp. implemented EVA as a performance metric and later used it as an incentive bonus metric because employees viewed and used capital as though their actions had no cost consequences (Leahy, 2000, p. 3). Approximately ten years after the implementation of the EVA, the companys earnings were $50 million more than its cost of capital (Leahy, 2000, p. 3) Although there are many who would argue that the NPV provides a more dynamic approach to investment decisions (Gitman, 2009, p. 428). EVA has proven to be a tool that seems to work if used appropriately. A lot of it boils down to attitude. Organizations that use EVA as a

stick to intimidate managers will suffer from stifled growth. But those that use the metric as a tool to identify the best avenues for growth can work wonders (Leahy, 2000, p. 4). Ultimately, all businesses want the highest return for their investments. The entire concept of business is to make a handsome profit. However, to be successful at business takes careful planning and a tremendous amount of patience. For the revelation awaits an appointed time; it speaks of the end and will not prove false. Though it linger, wait for it; it[] will certainly come and will not delay Habakkuk 2:3 (NIV).

References: Gitman, L. (2009). Principles of Managerial Finance: Brief (5th ed.). Boston: Pearson Prentice Hall. Leahy, T. (2000, July 1). Capitalizing on Economic Value Added. Retrieved from Business Finance: http://businessfinancemag.com/article/capitalizing-economic-value-added-0701 NIV. (n.d.). Retrieved from Bible Gateway: http://www.biblegateway.com/passage/? search=Habakkuk%202:3&version=NIV