Managing Shareholder Value

When EVA is a negative figure, there is an erosion of shareholder value whilst to increase/maximize shareholder value, we can attempt to improve the Company’s EVA.

To answer the question of how to improve EVA, let’s re-look at its formula:-
EVA=Net Operating profits after tax – (Capital Employed x Cost of capital)

Generally, we can improve EVA by reviewing the components or drivers of EVA:

NOPAT IMPROVEMENT:

• NOPAT is involves with revenue and profit growth. So to improve EVA we need to try to improve the returns with no or with only minimal capital investments.
  We should try to improve the business gross margin and looks at areas for effective cost spending or reduce costs where wastage might exist. (more…)

Introduction:

Economic value-added (EVA) has increasingly gain acceptance amongst many top-notched organization. This performance metric for creating shareholders wealth is closely tied with the Value Based Management as they share the same principle of realigning business practices towards increasing shareholder value.

Formula:

In simple term, EVA is: (more…)