EVA Economic Value Added (EVA) Term Paper

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Instead, it aligns the interests of managers with those of shareholders" (Shieley 14).

An editorial discussing the value of quality in a corporation's product, states that in the U.S., "quality' is too often a mantra without meaning - an empty promise... that bears no relation to the physical reality of the goods produced." The article goes on to suggest that there are inherent values in quality that can be factored into a company's bottom line, that, compared to other countries' output of quality products, American manufacturers ignore one of the most obvious principles of global business is that when engineering, R&D, quality control and personnel budgets are cut to save a few dollars, the bottom line suffers, because of the principles of EVA: there are factors that need to be determined and figured in when looking for future gains (Gottlieb 20).

Jay Coleman (95) spends many pages convincing the reader that firms cannot exist in isolation and that supply chain partners' success directly affects their own. In this article, Coleman determines that firms should look internally and combine EVA with ABC (Activity-Based Costing) to analyze operations and come out with the highest value-added for the end customer and for superior competitive positions for the firm.

Corporations are advertising to their shareholders that they are adding systems to assist in administrative processes that are interactive with various departments for efficiency.

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These value-added services are justified beforehand to investors and shareholders in order to boost confidence in the corporation's purchases and eventual benefits of those purchases. This has the effect of increasing the value of the stock (Enerwise 2002)

Goss promotes EVA use to justify the use of the Internet in one company's expenditures (51), while Chang and Chien describe 16 ways to enhance and enrich services in the high-tech industry (209).

EVA is a tool that is easily used by corporate executives to determine and justify to their investors and shareholders expenditures that may boost the bottom line without demonstrating a practical or traditional use. This is necessary in this age where technology-based and high technology-use corporations need to purchase software or systems that have not been utilized, yet promise high yield. It is also an instrument by which economic profit may be calculated by taking a company's net after tax operating profit and subtracting from it the product of the company's invested capital multiplied by its percentage cost of capital. This provides a standardized measure for the profits the company generated and helps the company determine future expenditures.

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