Chapter 2
Economic Value Added Analysis
In This Chapter
Understanding the logic of EVA
Checking out a simple example of EVA in action
Exploring some important points about EVA
Looking at a more complicated EVA example with debt
Here’s a curious fact: Even if your QuickBooks profit and loss statement shows a profit, you may not actually be making any money. How can this be? Ah, to really answer this question, you need to use a tool called Economic Value Added analysis (EVA), which was developed by (and is a trademark of) Stern Stewart & Co., a management consulting firm.
In this chapter, I discuss what Economic Value Added analysis does and how you can use the information that you create with QuickBooks to perform the EVA analysis. This is neat stuff but a bit theoretical. Fortunately, when you boil EVA down to its essence, it’s quite practical.
Introducing the Logic of EVA
Economic Value Added analysis states in a formula something you already know in your gut: If you’re a business owner, and you can make more money by selling your business, reinvesting the proceeds, and then getting ...
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