By Bennett Stewart
The go back to worth tells the hot EVA tale from the floor up. Stewart covers EVA essentials-the vintage financial revenue model of EVA-in the 1st 3 chapters of the book.-showing readers how how uncomplicated and intuitive EVA relatively is, the way it is outlined and why it's larger than all different measures of company revenue and money movement. you find the way it obviously courses managers into making the entire right decisions-the ones that may actually maximize worth. You even see find out how to use it in profit-sharing bonus plans that create the robust incentives of an owner. Read more...
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Additional resources for Best-practice EVA : the definitive guide to measuring and maximizing shareholder value
Invest capital, and build the business, but be sure to cover the full cost of the invested capital. In truth, the only way a company can increase its EVA over the long term is by investing, by growing, and by innovating, but the return on the new capital must exceed the full cost of raising the capital. The incentive, in short, is to take on as many positive net present value (NPV) projects as possible, but only positive NPV projects. Investments and strategies that don’t cover the cost of capital and that diminish the firm’s NPV are absolutely discouraged and penalized, as they should be.
You should stop using discounted cash flow analysis. That’s right. Stop using discounted cash flow. Cash flow is not wrong in principle. It does discount to NPV, after all, and NPV is still the goal. Cash flow just doesn’t work well in practice. The only time management assembles all of the cash flow numbers in one view is when an investment is first proposed. But once accepted and funded, the capital is buried on the firm’s balance sheet and no one really seems to care too much about it. As a result, operating teams have a burning desire to get their hands on as much capital as possible, to build their businesses, pad their budgets, and grease the skids for bonuses and advancement.
Intelligently cut wasteful costs. Increase NOPAT without increasing capital. Almost all measures get this one right, but EVA gets it right, too. It’s important, and it’s there. Go for it. 2. Grow profitably. Invest capital, and build the business, but be sure to cover the full cost of the invested capital. In truth, the only way a company can increase its EVA over the long term is by investing, by growing, and by innovating, but the return on the new capital must exceed the full cost of raising the capital.
Best-practice EVA : the definitive guide to measuring and maximizing shareholder value by Bennett Stewart