Many Facets of Leadership, The

Chapter 32. New Measures of Prosperity

Thomas Monahan and Stephen A. Stumpf

Defining and Measuring Economic Value

There is little debate over the need to enhance measurement systems to better capture "value" when analyzing firms. Recent innovations in economic value measurement, such as value-based management or Economic Value Added (EVA) systems, focus on using past financial performance data to forecast future cash flows (or adjusted profit tied to a firm's operations). These measurement systems define capital in financial terms alone. Defining capital in this way has enormous consequences on the reported, and hence perceived, value of an organization. These measures also highlight what the organization's leadership should focus on to develop ...