EVA: The Real Key to Creating Wealth (Hardcover)

by Al Ehrbar (Author) "This book celebrates a revolution in management known as EVA..." (more)
Key Phrases: bonus bank, target bonuses, accounting book value, Stern Stewart, United States, Postal Service (more...)

Editorial Reviews

Amazon.com Review
Al Ehrbar says there's a more meaningful way to gauge a company's performance than by quarterly earnings or other traditional yardsticks. It's called EVA, or economic value added, and it's helped turn companies like Coca-Cola into great engines of profit for shareholders. In EVA: The Real Key to Creating Wealth, Ehrbar describes how the formula works and how it can determine how efficient your company really is.

Unlike other financial ratios like EPS, or earnings per share, and ROE, or return on equity, EVA takes into account a critical factor: the cost of capital, or how much it costs to produce $1 in profit. Other measurements can be misleading because they show profits without deducting the price of producing them--a company that spends $1 to earn $1 could still appear profitable. As a result, Ehrbar says, those ratios can often show "accounting profits" rather than true profits as does EVA.

Ehrbar, a former editor and writer at such publications as Fortune and the Wall Street Journal, builds a convincing case for EVA. Take Wal-Mart vs. Kmart in the 1980s, Ehrbar writes. By traditional accounting measures, Kmart appeared to be the more profitable company, with an average gross profit margin of about 29 percent, while Wal-Mart's was only about 23 percent. But over the decade, Kmart's market value plummeted and Wal-Mart's surged. "So why was Wal-Mart a winner and Kmart a loser? Because Wal-Mart was using its capital more efficiently," Ehrbar writes, with higher sales per square foot of space and lower inventory as percentage of sales than Kmart. While EVA is geared for corporate managers, investors also will find a comprehensive method for judging a company's value. --Dan Ring

From Booklist
Stem Stewart & Company has made a significant contribution to the field of corporate finance through its development of EVA, or Economic Value Added. Ehrbar is a senior vice president of the firm. The research of Nobel laureates Merton Miller and Franco Modigliani provided the original basis for EVA, which measures a company's true profitability and provides a strategy for creating corporate and shareholder wealth. EVA is a performance measure and the basis for incentive compensation that drives behavior, making management actions and shareholder needs compatible. It forces managers to act like owners by holding monies at risk that are lost to them if improvements in performance are not sustained. Stem Stewart has expanded its application of EVA incentives beyond the executive level, down to workers on the shop floor, and we learn of instances in which the application of EVA has dramatically increased a company's stock price. Although this book is an infomercial for Stem Stewart, it should be noted that EVA has made an important contribution to modern business thought. Mary Whaley

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Product Details

• Hardcover: 256 pages
• Publisher: Wiley; Third Printing edition (October 21, 1998)
• Language: English
• ISBN-10: 0471298603
• ISBN-13: 978-0471298601
• Product Dimensions: 9 x 6 x 1.3 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 2.6 out of 5 stars See all reviews (14 customer reviews)
• Amazon.com Sales Rank: #611,064 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

29 of 31 people found the following review helpful:

1.0 out of 5 stars A commercial for Stern Stewart. Not much content., June 17, 1999

By A Customer

The book was more a commercial for the consulting firm of Stern Stewart than a book with real content for those looking to understand EVA. While some of the real-life examples were interesting, the book tended to drone on. The EVA "revolution" they spoke to seems less a revolution than a few managements doing the right thing and aligning employee and corporate goals. It's interesting that a couple of firms they cite adopting EVA have run into recent trouble with one, Harnischfeger, filing Chapter 11.

10 of 10 people found the following review helpful:

1.0 out of 5 stars Loads of Stories, lack of content, March 15, 1999

By	"loki-of-ragnar" (Rotterdam Netherlands) - See all my reviews

EVA, the ... creating wealth starts of in a nice pace laying some of the ground work to why companies should move to an EVA view on their business performance. However, after a chapter or so one might expect that the book shifts its focus to showing how to implement EVA in a real life organization. It is especially in this area that the books seriously lacks content. The numbers of all the SternStewart clients look great but not a single "How-to-EVA" step can be found in the book. The book stops after the sales pitch and expects the reader to contact SternStewart to take it from there. It is for this reason that I do not feel any economic value added from this book, and do not recommend others to lock up any capital or effort into this book.

Bottom line: nice concept, no content

8 of 8 people found the following review helpful:

1.0 out of 5 stars A Self-Promoting, Overly Simplistic Treatment, February 5, 1999

By	[e-mail] "tom_montgomery" (Paris, France) - See all my reviews

This book outlines in very basic terms the benefits enjoyed by companies that employ EVA (economic value added), which is basically a capital charge that is applied to a company's net contribution in order to assess the performance of the capital employed. Though the book does outline some interesting examples of how EVA programs can be expanded and applied to most functions in an organization, the book unfortunately dwells more on how the author's COMPANY can benefit those who might wish to employ an EVA program. The EVA concept is powerful and can be easily explained in ten pages. The rest of the book is filled with numerous seemingly redundant andecdotes and fluff, presumably to add some physical weight. The book also lacks practical examples of variations and treatments of EVA that could be potentially useful to managers of different types of organizations. I would highly recommend that potential purchasers look elsewhere for a better explanation of EVA and its powerful attributes.