EVA and Value-Based Management
Book

EVA and Value-Based Management

A Practical Guide to Implementation

S. David Young
McGraw-Hill, 2000
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Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

Kudos to S. David Young and Stephen F. O’Byrne, management consultants who largely steer clear of their industry’s usual empty catchphrases and superficial hype. Instead, their lucid explanation of the importance of shareholder value takes center stage. The heftiness of EVA and Value-Based Management may be daunting, but most readers will be satisfied with Part I’s strategic overview. The concepts reappear in Part II accompanied by a wealth of technical details, calculations and case studies to help finance professionals with nitty-gritty implementation of EVA (Economic Value Added) programs. The book honestly assesses EVA’s power to motivate managers, noting that some companies just are not well-suited for this performance metric. getAbstract.com prescribes this book to corporate executives who have overdosed on consultant jargon but still want to drive value growth in their companies, and to finance specialists who seek a comprehensive roadmap to EVA implementation.

Summary

The Significance of Shareholder Value

Although businesses exist to create value for their owners, corporate executives and managers do not always act to maximize shareholder value, because of perceived conflicts with other goals. Shareholder value does not necessarily conflict with good citizenship toward employees, customers, suppliers, the environment and the local community. Companies that respect those constituencies tend to outperform others, suggesting that value can be delivered to shareholders only if it is first delivered to other constituencies.

Value-based management strategies have been around as long as business has existed. Every useful performance metric attempts to measure changes in shareholder value. Economic value added (EVA) is the best metric available. The others each have significant drawbacks:

  1. Traditional income measures, including net income and earnings per share, can be easily manipulated, and they do not account for the cost of equity.
  2. Market-based measures, including market value added (MVA), excess return and future growth value (FGV), can only be calculated for publicly-traded entities.

About the Author

S. David Young is a professor at INSEAD, and a consultant on EVA and value-based management for several American, European and Asian companies. Stephen F. O’Byrne is president and co-founder of Shareholder Value Advisors, Inc., and former senior vice president at Stern Stewart & Co.

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