Become a Best-Practice EVA Company

• Published in: Best-Practice EVA Vol. 875; pp. 273 - 285
• Main Author: Stewart, Bennett
• Format: Book Chapter
• Language: English
• Published: United States John Wiley & Sons, Incorporated 2013; Wiley; John Wiley & Sons, Inc
• Subjects: Best‐Practice EVA Company; bonuses; cash flow analysis; Economic Value Added; EVA ratio metrics; FINANCE & ACCOUNTING; profit performance measure; substitutions
• ISBN: 1118639383; 9781118639382
• DOI: 10.1002/9781119204893.ch12

Adopting Best‐Practice Economic Value Added (EVA) is the surest way for every company to achieve greatest success in its chosen markets. The way to do that is not adding the bits and pieces one finds appealing. To be most effective, Best‐Practice EVA implies a commitment to go all the way with EVA. The process described in this chapter for adopting Best‐Practice EVA calls for three great substitutions. The first is to elevate EVA to the status of being the profit performance measure that counts in a company and is the final arbiter of how one makes decisions. The second substitution is to stop using discounted cash flow analysis and use EVA instead. The third substitution is to toss out or at the least subordinate all the conventional financial ratio metrics in favor of the new trio of EVA ratio metrics. What takes to be really successful with Best‐Practice EVA can be reduced to three things. The first one is willpower. It is about gaining a real commitment to EVA. The second critical success factor is to use EVA widely and deeply, wiring it into and throughout all aspects of management. The third success factor is to pay for it, and make bonuses and advancement up the corporate ladder a function of earning and increasing EVA.