Vadim Kotelnikov    

Economic Value Added (EVA)

A Tool to Measure Efficiency With Which Your Company Uses Its Resources

   

Vadim Kotelnikov, founder of 1000ventures - personal logo   Business e-Coach  

 

    

Economic Value Added (EVA) vs. Earning per Share (EPS)

EPS is calculated by dividing the net profits (after interest, depreciation and taxation) by the number of equity shares issued by the company to find out the profits earned per share. This measure is flawed because it does not consider the equity cost of capital employed (i.e. it assumes that equity capital comes to the company for free). EPS can be improved without corresponding improvement in performance simply by issuing further equity at a premium. Naturally, when more funds are pumped into the company, the size of the business increases without necessary increasing the profitability.

Creating Sustainable Profits: 9 Questions To Answer

EVA takes into consideration the total capital employed by the company total shareholders' fund (equity and accumulated profits) and total debt and finds out the difference between the earning and the cost of the capital employed.

Balanced Business System  Download PowerPoint presentation, pdf e-book

 

      

   

Balanced Business System

Resource-Based Model

Performance Measurement System

Corporate Reporting: Three-tier Model

Business Model

New Business Models  >>  10 Forces

Revenue Model  ●  Pricing

Venture Financing

Raising Venture Capital for Your Start-Up Venture  ●  Cash Flow Forecast

   

Economic Value Added (EVA) Defined

Economic Value Added (EVA), or economic rent, is a widely recognized tool that is used to measure the efficiency with which a company has used its resources. In other words,

EVA  is the difference between return achieved on resources invested and the cost of resources. Higher the EVA, better the level of resource unitization.

The Tree of Business Success Download PowerPoint presentation, pdf e-book

How EVA Is Calculated

EVA = Net Profit (after tax but before interest) less cost of capital employed (equity + debt).

Interest is not taken as an expense since this is part of cost of capital (interest on debt).

7 Routes to High Profits

EVA and Your Company's Market Capitalization

Market Value Added (MVA)   which is the difference between the market value of the company and the total capital invested in the company recognizes the EVA performance of companies. Positive MVA indicates creation of wealth and a positive EVA and vice versa.

6Ws of Corporate Growth Download PowerPoint presentation, pdf e-book

Your Revenue Model

A Revenue Model lays-out the process by which a company actually makes money by specifying how it is going to charge for the services provided... More

Internet Business and Revenue Models

Finding New Opportunities for Profitable Growth

To find and pursue new opportunities you must develop a clear point of view about sustainable growth and make it a part of your company's genetic code.  Leaders that go away from muddling along in a mature industry and toward coming alive with rapid growth prospects identify opportunities, develop selection criteria, select the avenues for profitable growth and pursue opportunities with speed... More

How To Discover Opportunities

Case Studies Monsanto

At Monsanto, when it started its transition from a chemical giant to a life sciences company, reward systems have been redesigned to focus on growth and instill a sense of ownership in the corporation. Monsanto granted stock option to the 95% of employees who previously didn't participate in a stock-option program. Economic Value Added (EVA) was adopted as the primary measure of financial performance. Incentive plans are tied to EVA, and employees eligible for management incentives have had a portion of their incentive converted into option... More

    

 

 

 

 

Konosuke Matsushita advice quotes

Profits should be a reflection of a vote of confidence from society that what is offered by the firm is valued.

Konosuke Matsushita

Panasonic

Henry Ford advice

Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service >>>

Henry Ford

Ford Moror

Charles Schwab advice quotes

A man to carry on a successful business must have imagination and see things as in a vision, a dream of the whole thing.  >>>

Charles Schwab

Schwab Inc.

Bill Gates advice

Every day were saying, 'How can we keep this customer happy?' How can we get ahead in innovation by doing this?

Bill Gates

Micsosoft

Vadim Kotelnikov advice quotes

Love for customers is the springhead of the cascade of innovations
and the river of
revenues >>>

Vadim Kotelnikov

e-Coach