320 db3 - spent the past few decades cranking out financial...

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Why might a company use Economic Value Added (EVA) as a measure of its performance in addition to the standard measures? EVA is not a new economic or financial theory but has been adopted by business firms as an accounting practice. EVA is a variation of residual income with adjustments to how one calculates income and capital. It has grown steadily as business managers have become disgruntle with standard accounting practices. Financial consultants of Stern Stewart & Co. claims that their preferred metrics correlate more closely to shareholder re- turns than traditional measures do. The key idea behind EVA is shareholders must earn a return that will compensate the risk taken. EVA, is easily the most glamorous of accounting metrics, all of which are aimed at measuring the degree to which a company's after tax operating profits exceed or fall short of the cost of the capital it has invested in its business. A rmstrong World In-dustries Inc. has a proud history dating back to 1860, but it has
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Unformatted text preview: spent the past few decades cranking out financial returns considerably more uneven than the rolling plains surrounding its rural Lancaster County, Pennsylvania, headquarters. "We're much more attentive to the use of capital and the amount of capital in each business," says Warren Posey, assistant treasurer and director of investor relations. "We have pushed EVA down to all salaried employees worldwide." Many companies have decided that selecting Stern Stewart's EVA is the safe and easy choice. It is said to be as easy as selecting Microsoft software for your PCs. References Gitman, Lawrence J. (2009). Principles of managerial finance brief. Pearson Prentice Hall, Boston, MA. Myers, Randy. CFO Magazine November 1997. Measure for Measure . Retrieved 23 November 2009. http://www.uic.edu/html/cfocont.html Makelainen, Esa. Economic Value Added as a management tool. Retrieved 23 November 2009 www.evonomics.com...
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