 |
Al Ehrbar EVA: The Real Key to Creating Wealth Buy this title or join our Management Literature Club and have a chance to GET IT FREE! |
|||||||||||
|
Business Nugget by Robert Morris One of the most important business books to appear in recent years is EVA, written by Al Ehrbar, and published by John Wiley & Sons, Inc. According to Ehrbar and his associates at Stern Stewart, "Economic Value Added" is the real key to creating wealth. That is, EVA offers (in its author’s words) “a superior measure of corporate performance, one that is tied more directly to share than any other performance measure, by charging profit for the cost of all the capital a company employs, including equity.” More specifically: "It is the framework for a complete financial management and incentive compensation system that can guide every decision a company makes...that can transform corporate culture, that can improve the working lives of everyone in an organization by making them more successful, and that can help them produce greater wealth for shareholders, customers, and themselves." Major corporations such as Coca-Cola, Eli Lilly, and Siemens AG have achieved spectacular results by applying EVA principles. What most reviewers of EVA neglect to point out is that many of these same principles can also be of substantial benefit to small-to-midsize, privately held companies. In essence, EVA principles require literally everyone within any organization (regardless of size or nature) to think quite differently about economics. Indeed, EVA re-defines "ownership" so as to include literally everyone involved in a given enterprise. How can it be true that a company achieves record sales and profits one year and is bankrupt the next? Ehrbar asserts that "wealth creation" is not dependent on record sales and profits but, rather, is the result of rigorous and prudent management of capital. In EVA, Ehrbar explains how to: • Use EVA principles to maximum MVA (market value added) which equals market value minus total capital, where a company's market value is the present value of future profits discounted to today at the company's cost of capital. • Align the financial interests of employees with that of the shareholders, improve motivation and morale, and create an atmosphere in which managers constantly strive to create more wealth. • Eliminate distortions which plague traditional accounting in order to measure accurately net operating profits after taxes, or NOPAT for short. • Increase MVA with prudent growth. Ehrbar suggests, "To implement EVA properly, keep it simple and keep it accountable. To make it simple, EVA must become the focal point of the business. To make it accountable, use EVA as the basis of compensation...so that the wealth created by the company can be shared with all of the people who have helped to bring that wealth about." Peter Drucker makes a key point when suggesting that "Until a company returns a profit that is greater than its cost of capital, it operates at a loss." For those committed to creating wealth both for their companies and for their employees, EVA is "must reading." Order EVA: The Real Key to Creating Wealth here. Find the full list of Robert Morris's Business Nuggets featured by Eastbook.com here.
Click to order from:
|
||||||||||||
