In Search of Measuring Corporate Success: Eva *As a Choice, Not a Panacea

Abstract

Economic value added (EVA) has been getting plenty of attention in recent years as a new form of performance measurement. In a recent Fortune article entitled 'The Real Key to Creating Wealth', the author claims that using EVA can give you a marked competitive advantage over the competition (Tully, 1993). Furthermore, the author states that EVA is today's hottest financial idea and getting hotter. An increasing number of companies are responding to this kind of hype by relying heavily upon EVA to evaluate and reward managers from all functional departments. The purpose of this article is to have a look into on the limitations and uses of EVA. Specifically, the article answers three questions: (1) Is EVA a new form of performance measurement? (2) What are the strengths and limitations of EVA? and (3) How should EVA be used to evaluate performance?