However, EVA is neither as perfect as claimed by its advocates, nor is it the only performance measure that suggests a path to a superior stock return" (emphasis added) (p. 319).
More importantly, though, while the economic value added measurement approach to financial performance may not be without its detractors, the scholarly literature is consistent in emphasizing the need for such initiatives for companies to remain competitive in an increasingly globalized marketplace today. For instance, in his recent essay, "Profit-Increasing Strategies," Tracy (2006) reports that there are a number of ways for most companies to add value to their product or service. "There are many strategies for generating sales, profitability and wealth in every industry," he advises. "Your ability as an entrepreneur to create a profitable business where no business existed before is the key to your success. In every market, it's usually true that 20% of the businesses earn 80% of the profits in their industry" (Tracy, 2006, p. 2).
The studies of companies to date concerning their ability to capture market share suggest that these companies have the following in features common:
Operational excellence. The company has developed the ability to produce its products and services at a cost substantially lower than its competitors.
Customer intimacy. The company has developed a close relationship with its customers based on an excellent knowledge of their customers' business.
Technological superiority. The company offers a product or service that's superior to that of its competitors (Tracy, 2006).
There are also a number of strategies that companies can follow to create additional value for their customers and additional profits for themselves, including the following:
Improve a product or service in some way so that it is better than that of a competitors, at the same or a lower price.
Produce or deliver a product or service to customers faster than competitors.
Produce a product or service cheaper than competitors, maintaining or increasing the same level of quality.
Offer better follow-up and support services than competitors in combination with a product or service.
Provide guarantees and warranties of satisfaction that are more extensive than those of competitors.
Make a product easier to acquire and more readily available than those of competitors.
Make the price and terms more attractive and convenient...
Economic Value Added (EVA) Accounting Practice Although Economic Value Added (EVA) is not a new concept in economics and financial theory and is based on the 19th century concept of "economic profit," it has only been widely adopted recently by business firms as an accounting practice. In this paper we shall describe what EVA is, and look at its pros and cons from the point-of-view of the company adopting the practice
The absence of these however does not detract from the general value of the article, or from the proof of the premise. Furthermore, it could also be acknowledged that the factors described, other than EVA, are already well-known in accounting, and do not need a clear explication of both strengths and weaknesses. Another factor in favor of the article and its premise is the fact that the authors acknowledge the
Instead, it aligns the interests of managers with those of shareholders" (Shieley 14). An editorial discussing the value of quality in a corporation's product, states that in the U.S., "quality' is too often a mantra without meaning - an empty promise... that bears no relation to the physical reality of the goods produced." The article goes on to suggest that there are inherent values in quality that can be factored
Economics Economic Value Added Economic Value Added is an analytical tool which was developed in 1982 by Joel Stern and G. Bennett Stewart and has been widely accepted as a means of measuring a company's real profitability. This tool is unique because it involves calculating "the firm's residual profitability, net of both the direct cost of debt capital and the indirect cost of equity capital." (Grant, p. 2) Debt capital can
Value-Based Management (VBM) is a management philosophy that aims to achieve superior results (Niedell, 1996). This process measures performance by the value that is returned to shareholders. Successful implementation of VBM requires a successful change in corporate culture, as well as the adoption of VBM concepts at all levels and functions within an organization. VBM includes an integration of performance measurement, compensation, strategic planning, training, and communication (Porter, 1986). The
Accounting Operating Leverage, Return on Investment, Economic value added and Net Profit Margin at Yum Brands A firms performance is often measured using ratios. There are many different ratios which are used, all indicating different types of performance measurement; four of these measures are operating leverage, return on investment (ROI), economic value added (EVA) and net profit margin. These all provide the ability to perform historical assessment to assess the trends or
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