Economic Value Added and Small Businesses

Authors

  • Charles P. Baril James Madison University
  • S. Brooks Marshall James Madison University
  • Robert F. Sartelle Virginia Corporation Commission

Abstract

Economic Value Added (EVA), a tool for creating wealth, is a leading idea in corporate finance today. Highly regarded companies like Coca-Cola and CSX have seen their market value soar since adopting EVA. The concept is straightforward; value is created when earnings exceed the cost of invested capital. Thus, EVA is rapidly gaining acceptance among large, publicly-traded corporations. However, EVA can be applied effectively to create value in small, privately-held firms, too. This article illustrates EVA's application in small, privately-held firms, examines EVA "s strengths and weaknesses, discusses ways to overcome those weaknesses, and describes specific operating, investing and financing actions small business managers can take to create wealth.

References

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Birchard, B. (1996). How Valmont Industries implemented EVA. CFO: The Magazine for Senior Financial Executives, 12 (3), 34-40.

Boston Consulting Group, Inc. (1996, October). Shareholder Value Management.

Brigham, E. (1995). Fundamentals of Financial Management, 7"' Edition. Fort Worth, TX: · Dryden Press.

Lowenstein, R. (1997, February 13). Testing the latest economic elixir. The Wall Street Journal, C I .

Ochsner, R. C. (1995, March/April). Welcome to the new world of economic value added. Compensation & Benefits Review, 30-32.

Peterson, P. P. & Peterson, D. R. ( 1996). Company Performance and Measures of Value Added. Charlottesville, VA: Research Foundation of the Institute of Chartered Financial Analysts.

Stem, J. (1994, March). No incentive for bad management. Corporate Finance, 43-44.

Stewart, G.B., lll (1991). The Quest for Value. Harper Collins Publishers, Inc.

Stewart, G.B., lll (1995). EVA works - But not if you make these common mistakes. Fortune, 117-118.

Tully, S.(1993, September 20). The real key to creating wealth. Fortune, 38-50.

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Published

1997-06-16

Issue

Vol. 8 No. 2 (1997)

Section

Articles

License

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How to Cite

Economic Value Added and Small Businesses. (1997). Journal of Small Business Strategy (archive Only), 8(2), 67-78. https://libjournals.mtsu.edu/index.php/jsbs/article/view/370