Analysis of Eva as a Financial Performance Measure

Analysis of EVA as a financial performance measure

The last two decades have experienced significant changes in the way companies implement their goals and measure the effectiveness of the strategy. Top managers are under pressure of capital markets to generate greater than ever profits for the firm by undertaking right evaluation metrics. So, different significant factors like advancements in capital markets, information technology and, generally, globalization has led to appearance of the new notion in companies. (Yong, p.5) Creation of wealth for shareholders has become the key concept for the firm to be efficient and competitive in the market. In this case, this essay will focus on one of the metrics for the financial performance in the firm, EVA, which has received a great deal of discussions lately on how effective it actually is in evaluating the corporate financial performance. So, in the first part of the work the concept of the strategy and its realization, namely Balance Scorecard approach, will be given some consideration as this ones are essential to understand to proceed with the subsequent discussion of the management accounting system to use for assessing this strategy. Next, I will critically discuss Economic Value Based method as a good tool for assessing the firm strategy in a short-run, especially in financial terms. This will be followed by some comparison of EVA with ROI, and the limitations of the EVA will be discussed. Then, the practices of this approach will be investigated and, finally, and I will observe at the real practices of EVA.

To begin with, it is crucial to understand what the strategy of the company is and how it is going to be put into practice before we start the discussion of the EVA.

Strategy can be defined as a long-term action plan to achieve a goal. As Young (2001) has noticed capital market has changed a lot in the last 20 years. Now, it becomes clear the top management needs to practice different approaches to...