Open AccessUsing The EVA Financial Management System To Make The Wrong Decision
Author(s) -
David A. Stangeland
Publication year - 2011
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v4i11.2713
Subject(s) - measure (data warehouse) , cash flow , compensation (psychology) , economic value added , capital budgeting , computer science , term (time) , finance , actuarial science , economics , business , microeconomics , incentive , debt , psychology , database , psychoanalysis , physics , quantum mechanics
EVA may result in underinvestment problems and suboptimal strategies used to boost near-term performance at the expense of the future. To solve these problems, a new measure, CFMAC, is developed. This paper describes the types of problems associated with the EVA Financial Management System that includes use of the EVA measure and compensation schemes touted by EVA proponents. A new annual measure, cash flow minus amortized capital (CFMAC) is developed to address the problems inherent to EVA.