Modification of EVA in Value Based Management

AbstractThis article deals with the value based management and the metrics used in it. Nowadays, one of the basic requirements on the company is creation of value for the shareholders and that is why managers have adopted value-oriented methods to be able to measure any change of value. In the past, managers of many companies were focused on the main economic objective which they considered to be the maximization of profits. But this attitude was not sufficient to satisfy the requirements of shareholders, because their preferences lie in the value of the company. There will be described the most common value-oriented indicator, economic value added (EVA), in the article. The developer of the EVA concept is Stern Stewart & Company. They criticized the traditional indicators as ROA, ROI, PAT, EPS etc. for their characteristic and the weak explanatory power in terms of value creation. Company valuation through EVA is an appropriate mean to determine creditworthiness of a company. The EVA calculation also provides valuable information for various areas of management. This metric is quantifying the value that was added as a result of the implementation of operational activities during the reference period. Moreover, there are many modifications of the EVA used in practice, such as MVA, CVA, SVA, RONA that will be described and compared in the article