EVA & MVA as performance measures and signals for strategic change

The increasing frequency with which the business environment demands strategic change elevates the role played by performance measures in assessing alternative business strategies. Traditional accounting measures of performance have long been criticized for their inadequacy in guiding strategic decisions. Two alternative measures of business performance, EVA (eco‐nomic value added) and MVA (market value added) have been attracting much attention of late. According to a recent article in Fortune , EVA is employed by a large number of firms, including Coca‐Cola, AT&T, Quaker Oats, Eli Lilly, Georgia Pacific, and Tenneco. Unlike traditional accounting measures of performance, EVA attempts to measure the value that firms create or destroy by subtracting a capital charge from the returns they generate on invested capital. In addition to their use as performance measures, EVA and MVA are recommended by some as metrics for executive compensation plans and the development of corporate strategies.