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article review for managerial accounting - Essay Example
Finance & Accounting
Pages 3 (753 words)
Name: Instructor: Course: Date: Article Review for Managerial Accounting Economic Value Added (EVA) is a financial concept used to measure the actual profitability of a business operation (Tully and Hadjian 38). Investors and business managers can use EVA to learn stocks that are most likely to rise as well as determine if their business interests are going up in value…
Therefore, EVA can also be described as after tax profit less annual total cost of capital. Corporate groups and divisions that do not use EVA may not get the true picture of how much capital is tied up or the cost implications the capital bears. Although borrowed capital’s cost is reflected in the interest expenses of a company, equity capital’s cost is not shown in any of the financial statements. EVA gives managers a way of determining if they have all their costs covered, and hence, adding value to the company. The key concept behind EVA is to earn more than capital costs, and it works well in both the industrial and service companies. However, some industries such as land or natural resources companies where assets do not depreciate but rather appreciate need special adaptations to workings of EVA. Some of the leading companies that successfully used EVA to turn around their income generation and cut down on capital costs include Coca-Cola, CSX, Quake Oats, Briggs & Stratton and AT&T. According to the Coca-Cola CEO Roberto Goizueta, the company raises capital they use to manufacture concentrate, which is then sold at an operating profit for the shareholders (Tully and Hadjian 38). ...
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