“Despite our positive operating profit, our share price does not reflect our good performance,” the CEO of Infra Industries states during his monthly review meeting with the managing board. This was one of the key reasons why Infra Industries chose to introduce Economic Value Added (EVA). Most interestingly, what seemed to be good operating performance was not reflected in positive EVA figures. Instead, these figures showed negative values.
But what exactly is needed to turn negative EVA figures into positive ones? What types of measures are necessary? And is there a structured way to tackle this issue?
To obtain answers to these questions, you must understand the elements of EVA and the methods to improve them. EVA forces you to direct attention to managing operating assets. For example, huge inventory levels directly affect EVA, while traditional performance measures, such as operating profit, are not affected. Improving the inventory levels is one concrete measure that creates value in any organization. But you can do a lot more than that. Any asset is costly, and realizing this helps you to identify additional measures to improve both EVA and value in your organization. Moreover, the cost for using assets is not a fixed number. Any organization can do a lot to minimize its cost of capital by simply thinking about its capital structure and the cost of its elements.
And finally, the most important driver for value is growth. Understanding how to manage growth effectively contributes significantly toward the future development of your organization.
So what are some of the ways you can contribute to growth in your organization? The Accenture Academy course Managing Performance with Economic Value Added (EVA) highlights various methods to improve the performance of your organization. It illustrates how to effectively use EVA for creating value in your organization.