Performance Measures of Shareholders Wealth: An Application of Economic Value Added (EVA)

International Journal of Applied Financial Management Perspectives, Volume: 1, Number: 2, October–December, 2012

7 Pages Posted: 18 Feb 2013

See all articles by Perways Alam

Perways Alam

M D University - Y.M.D. College

Shaikh Nizamuddin

Research Scholar at Center for Studies in Economics and Planning, School of Social Science, Central University of Gujarat (INDIA)

Date Written: February 14, 2013

Abstract

Economic Value Added (EVA) is a value based performance measure that gives importance on value creation by the management for the owners. Profit maximization as a concept is age-old, wealth maximization is matured and value maximization is today’s wisdom. Stern Stewart’s EVA raises storm in corporate world and gives a new way to think about rewarding management.Usability of EVA largely depends on the quality of accounting information system, as traditional information system will not provide sufficient information to compute true EVA. Thus, EVA is required to be tailored in line with accounting system, management philosophy and the degree of demand of such a system. In this paper, an earnest effort has been made to explain theoretical foundation of EVA with its origination, definition, ways to make it tailored, adjustments required, scope and some other related issues. The methodology used is a type of theoretical mining of logics resulting a step-by-step process required for EVA implementation. As corporate house plans to move from traditional to value based performance measures, EVA would yield good result and the paper may become helpful to them to comprehend the methodology.

Keywords: Value Based Performance Measure, Tailored EVA, Residual Income (RI), Accounting Distortions, Shareholders’ Value, Value Based Measure, Market Value Added, True EVA etc

Suggested Citation

Alam, Perways and Nizamuddin, Mohammed, Performance Measures of Shareholders Wealth: An Application of Economic Value Added (EVA) (February 14, 2013). International Journal of Applied Financial Management Perspectives, Volume: 1, Number: 2, October–December, 2012. Available at SSRN: https://ssrn.com/abstract=2217307

Perways Alam

M D University - Y.M.D. College ( email )

Rohtak, Haryana 124001
India

Mohammed Nizamuddin (Contact Author)

Research Scholar at Center for Studies in Economics and Planning, School of Social Science, Central University of Gujarat (INDIA) ( email )

Plot no 138, Sarvodya Nagar,
Sector 30,
GANDHINAGAR, 382030
India
919624870785 (Phone)

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