EVA as Superior Performance Measurement Tool

Abstract

Prior to the East Asian financial crisis scholars found the necessity of a true financial performance measure in Malaysia. After more than one decade of the crisis Malaysian firms still stick with the conventional performance measures, which are criticised due to general accepted accounting principles. In this vein, this study aims to study a value based financial performance measure which can be adopted by the Malaysian firms over the conventional measures currently used. Economic Value Added (EVA) was introduced and advocated by Stern Stewart and Co. in 1982. This study intended to identify why EVA should be used as financial performance measure over the conventional measures and any added value or added advantage in EVA compare to conventional methods. EVA has been able to gain attention of the corporate giants like Coca-Cola, Sprint Corporation and Quaker Oats, as it is able to depict the true profitability of the company, however, there have been very little research conducted on EVA in Asian countries including Malaysia.

Economic Value Added and Traditional Accounting Measures for Shareholder’s Wealth Creation

“…Furthermore, Al Mamun, Entebang and Mansor (2012) note that conventional performance measures are criticized due to generally accepted accounting principles. Shareholders are suffering from having a suitable performance measurement tool that can aid investors to assess the investment return (I. Ismail 2011).…”

The Impact of Economic Value Added & Return on Investment on the Changes in Stock Market’s Value (Analytical Study: ASE: 2006-2015)

“…EVA relies on value in assessing the financial performance of companies. The value added concept is common in the Classical economic thought, but the current interest in this concept is due to the US consulting firm: Stern Stewart, where it presented a new model of performance appraisal in the late 1980s (Sharqawi, 2006) (Al Mamun & Abu Mansor, 2012).…”

“…In another study, Al Mamun and Abu Mansor's (2012) aimed to measure the financial performance of the Malaysian companies based on the economic value added rather than the standards currently adopted by the Malaysian companies. It also aims to identify the reason for using the economic value added in measuring the financial performance and the advantage of its use compared to the traditional methods.…”

O desempenho de grandes empresas do BRIC, EUA, Japão e Alemanha: uma comparação com base na geração de valor

“…Segundo Rappaport (2001, p. 82), "[...] a atratividade de um setor também será afetada pelo nível de investimentos em recursos, e capacidade, necessários para manter seu potencial de criação de valor." Por razões como esta, além da capacidade de descrever a verdadeira rentabilidade da empresa, a metodologia do EVA é utilizada por grandes corporações, como apontam Mamun et al (2012). Ehrbar (1999), há mais de uma década, já mostrava a ampla aceitação do EVA na comunidade acadêmica e na mídia especializada em investimentos, especialmente junto aos analistas de Wall Street.…”