Insights into Value Creation: Using EVA to Measure Performance

A company’s primary goal is to maximize shareholder value, and many companies measure their progress by stock price performance and dividend growth.

But in practice, it is also well understood that stock prices can be fickle, influenced by market factors well outside of management’s full control such as changing investor expectations and a host of other macroeconomic and competitive factors.

In this article, we explore the specific challenges market participants face when using traditional accounting metrics to assess performance, as well as the limitations those metrics place on corporate leadership in informing and guiding proper capital allocation and decision making. In addition, we present a potential solution and alternative framework called Economic Value Added (EVA.)

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