Paper Summary:

The paper examines the article "Economic Value Added (EVA): A New Flexible Tool for Measuring Corporate Performance" where Girotra and Yadav address the benefits of EVA for determining the cumulative value of a business. The paper highlights the premise of the article that EVA contributes an additional measure of value in terms of corporate performance, which other measures do not. The writer of this paper explains why he believes this article is well written and specifically notes that the shortcomings of EVA are also taken into account. The writer concludes by relating why he believes EVA is a beneficial system for companies.

From the Paper:

"The article is structured in a comparative framework. The authors for example provide brief but detailed descriptions of the conventional accounting measures, with the reasons for their inadequacy in terms of determining value. In today's volatile business world, value is of utmost importance, particularly in terms of investments. Investors are concerned with knowing the value of a company before making the decision to invest. Companies in turn are obliged to keep a close eye on value and its creation in order to maintain a good relationship with their investors.
"EVA is based upon the advantage that shareholders gain from investing in the company. Items such as interest bearing debt, equity capital, and net operating profit are taken into account when calculating EVA. Shareholders require returns that compensate their risks when investing in the company in the first place. If the company cannot demonstrate a value of return, then it is in effect operating at a loss. Hence, EVA has been implemented by several companies in order to provide shareholders with value that will ensure their loyalty to these companies.
"After explaining the basic concepts, the article continues to demonstrate these by means of a company case study. Factors such as production, earnings, and capital investments are taken into account. A description of the company is followed by detailed calculations to arrive at the company's EVA."

Sample of Sources Used:

• BNET Editorial. 2009. Assessing Economic Value Added. Stern Stewart & Co. http://www.nait.org/jit/Articles/walk0299.pdf
• Girotra, Arvind and Yadav, Suretra S. 2001. Economic Value Added (EVA): A New Flexible Tool for Measuring Corporate Performance. Global Journal of Flexible Systems Management, Jan-March Issue. http://findarticles.com/p/articles/mi_qa4012/is_200101/ai_n8931782
• Walker, H. Fred. 1999. Cost Justification of Capital Equipment Using "Economic Value Added" Analysis. Journal of Industrial Technology, Vol. 15, No. 2, Feb-April. http://www.nait.org/jit/Articles/walk0299.pdf

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