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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. InEVA: 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 asFortuneand theWall 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. WhileEVAis geared for corporate managers, investors also will find a comprehensive method for judging a company's value.--Dan Ring
reviewers pls be more truthful how could someone give it a five stars rating when in fact there is nothing in this book that really tell you much about eva except the fact that it improves company performance, not the how and why,
Give me a break! I bought this book based on the glowing reviews below, but as it turned out, the only reveiwer telling the truth was the one who calls this book a big commercial for Stern-Stewart.
Yes, EVA is a valuable, useful tool that has brought accounting out of the dark ages, but you already knew that -- that's why you're looking for books on EVA, right? Unfortunately, this particular book goes to a lot of trouble to try to convince you of what I just stated in the previous sentence. There. Now you don't need to buy this book.
I wish I could tell you which book to buy about how to practically implement EVA in your company, but, unfortunately, I'm still looking for a book that does that.
Easy, simple, understandable to anyone Al's book is a great collection of successfull EVA case studies. It is not intended to be "The EVA book" for financiers. It does what it is supposed to do: Give simple and powerfull examples on the concepts and applicability of EVA to real world companies. One of the strongest aspects of the book is to give examples of EVA implementation on a broad set of industries. The case of US Postal Service is especially powerfull.
