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Product Description
Called "today's hottest financial idea and getting hotter" by fortune magazine, Economic Value Added (EVA) is the topic of conversation in financial circles around the world, from Germany and Japan to Singapore and South Africa. A revolutionary strategy for creating corporate and shareholder wealth that measures a company's real profitability, it has been adopted by such prominent corporations as Coca-Cola, Eli Lilly, and Siemens AG-with spectacular financial results. Yet, despite its increasing visibility, most executives still only have a vague notion of what EVA is and what it can do for their company. This groundbreaking book explains and clarifies all. Written by Al Ehrbar, a leading business journalist and senior vice president at EVA inventor Stern Stewart & Co., EVA: The Real Key to Creating Wealth provides a complete, accessible overview that examines how exactly EVA works, how it is measured, what it can do to structure incentives for employees, and why it is as potent as it is.
At its most basic, Economic Value Added is a measure of corporate performance that differs from most others by charging profit for the cost of all the capital a company employs, including equity. To help translate principle into real-world practice, Ehrbar presents revealing case histories of EVA success stories, including those of Briggs & Stratton, the U.S. Postal Service, and Coca-Cola, which was catapulted from mediocrity to the number one wealth creator in the world with the addition of EVA.
An in-depth look at a breakthrough idea whose impact is being felt from corporate boardrooms to Wall Street, this indispensable book is must reading for business leaders looking to fully grasp-and profit from-"the real key to creating wealth."
Amazon.com Review
Al Ehrbar says there's a more meaningful way to gauge a company's performance than by quarterly earnings or other traditional yardsticks. It's called EVA, or economic value added, and it's helped turn companies like Coca-Cola into great engines of profit for shareholders. In EVA: The Real Key to Creating Wealth, Ehrbar describes how the formula works and how it can determine how efficient your company really is.
Unlike other financial ratios like EPS, or earnings per share, and ROE, or return on equity, EVA takes into account a critical factor: the cost of capital, or how much it costs to produce $1 in profit. Other measurements can be misleading because they show profits without deducting the price of producing them--a company that spends $1 to earn $1 could still appear profitable. As a result, Ehrbar says, those ratios can often show "accounting profits" rather than true profits as does EVA. Ehrbar, a former editor and writer at such publications as Fortune and the Wall Street Journal, builds a convincing case for EVA. Take Wal-Mart vs. Kmart in the 1980s, Ehrbar writes. By traditional accounting measures, Kmart appeared to be the more profitable company, with an average gross profit margin of about 29 percent, while Wal-Mart's was only about 23 percent. But over the decade, Kmart's market value plummeted and Wal-Mart's surged. "So why was Wal-Mart a winner and Kmart a loser? Because Wal-Mart was using its capital more efficiently," Ehrbar writes, with higher sales per square foot of space and lower inventory as percentage of sales than Kmart. While EVA is geared for corporate managers, investors also will find a comprehensive method for judging a company's value. --Dan Ring
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