EFFECTIVENESS OF EVA:
A COMPARATIVE STUDY ON INDUSTRIAL
PRODUCT COMPANIES IN MALAYSIA
POTOSTAl TtDAK DiBENARKAN
AHMAD ZOOLHELMI BIN ALIAS
DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE DEGREE OF
MASTER OF ACCOUNTANCY
UNIVERSITITEKNOLOGIMARA
2001
ABSTRACT
Economic Value Added (EVA) was advocated by Stern Stewart and Co. in 1982.
This study intended to identify any added value or added advantage in EVA compare
to conventional methods such as percentage increase in net tangible assets, profit
margin, return on assets (ROA) and return on equity (ROE) as a performance
measurement.
This study is conducted in Malaysian business environment, as results of the
previous researches are mixed regarding the efficacy of EVA. A sample size of 78
companies from Industrial Product sector of KLSE main board had been selected.
In analysis of performance ranking and correlation between stock return and
financial parameters, the outcomes have proved that there is no added value or added
advantage in EVA compared to conventional methods as a performance
measurement.
It is hoped that this study will give at least a basic idea of Economic Value Added
and also explain correlation between financial parameters and stock return under
Malaysian business environment.
ACKNOWLEDGEMENTS
This appreciation is dedicated to those who have closely contributed their valuable
assistance, cooperation and support towards the completion of this dissertation and
also throughout my studies in the Master programme.
First of all, I am sincerely grateful to my advisor, Prof. Saiyed Nazim AH, who
reviewed the work in detail and provided useful comments and suggestions. I am
also thankful to him for making himself available whenever I needed him.
My special appreciation also goes to Prof. Dr. Ibrahim Kamal Abd Rahman, the
Dean of the Faculty of Accountancy, who has been the source of inspiration
throughout my studies and Dr. Asmah Abd Aziz, the Coordinator of Master of
Accountancy, for her continuous supports, guidance, help and valuable advises. I
would also like to thank them for reviewing my dissertation.
My deepest appreciation also goes to my wife, Rai'hatul Wardah Asnawi for all her
prayers and supports and my newborn daughter, Aliyarul Batrisya who have inspired
me all along my studies and also in completing this dissertation.
Last but not least. I would also like to thank Ms. Elly Zarina Abd. Manaf for
reviewing and editing my dissertation.
11
TABLE OF CONTENTS
Page
{
Abstract
Acknowledgements
ii
Table of Contents
iii
List of Tables
v
List of Appendices
vi
List of Abbreviation
vii
CHAPTER ONE : INTRODUCTION
1.1
Background of the Study
1
1.1.1
3
How EVA work
1.2
Statement of the Problem
4
1.3
Objectives of the Study
5
1.4
Scope of the Study
5
1.5
Organisation of the Study
6
1.6
Motivation of the Study
6
CHAPTER TWO : LITERATURE REVIEW
2.1
EVA and its Benefits
8
2.2
EVA is better than Conventional Financial Measurement
12
2.3
Wrong Application of EVA
14
2.4
Critics of EVA
15
2.5
Conceptual Framework
18
CHAPTER THREE : RESEARCH DESIGN AND METHDOLOGY
3.1
Sampling Design
21
3.2
Research design
22
3.3
Data collection
27
3.4
Data analysis
27
in
CHAPTER FOUR
:
DATA ANALYSIS AND DISCUSSION OF
RESULTS
4.1
Descriptive Analysis
30
4.1. \
30
Percentage Increase in Net Tangible Assets (NTA) per share
4.1.2 Operating Margin and Increase in Operating Margin.
32
4.1.3 Return on Equity (ROE)
35
4.1.4 Return on Assets (ROA)
36
4.1.5 Market Value Added (MVA)
37
4.1.6 Economic Value added (EVA)
38
4.1.7 Increase in Economic Value added (EVA)
39
4.1.8 EVA per Capital
40
4.2
Performance Ranking
42
4.3
Correlation between Stock Return and other financial parameters.
43
4.3.1
Year 1995
44
4.3.2 Year 1996
44
4.3.3 Year 1997
44
4.3.4 Year 1998
45
4.3.5
45
Year 1999
CHAPTER FIVE : CONCLUSIONS
5.1
Conclusions
46
5.2
Problems and Limitations
47
5.3
Future Research
48
BIBLIOGRAPHY
APPENDICES
IV
LIST OF TABLES
Page
TABLE 1
: Summary on Average or Mean of the Descriptive Statistics
30
TABLE 2
: Descriptive Statistics for Percentage Increase in Net
31
Tangible Assets
TABLE 3
: Descriptive Statistics for Operating Margin
33
TABLE 4
: Descriptive Statistics for Increase in Operating Margin
34
TABLE 5
: Descriptive Statistics for Return on Equity (ROE)
35
TABLE 6
: Descriptive Statistics for Return on Assets (ROA)
36
TABLE 7
: Descriptive Statistics for Market Value Added (MVA)
37
TABLE 8
: Descriptive Statistics for Economic Value Added (EVA)
38
TABLE 9
: Descriptive Statistics for Increase in EVA
39
TABLE 10
: Descriptive Statistics for EVA per Capital
41
TABLE 11
: Summary of Wilcoxon Signed Ranks Test Result
42
TABLE 12
: Summary Of Spearman's Rank Order Correlation Result
44
LIST OF APPENDICES
APPENDIX 1
: Companies performance results.
APPENDIX 2
:
Ranking of companies based on individual financial
parameters.
APPENDIX 3
:
Weighted average ranking of companies.
APPENDIX 4
:
Wilcoxon Signed Ranks Test Result
APPENDIX 5
:
Spearman's Rank Order Correlation Results.
LIST OF ABBREVIATION
CAPM
Capital Assets Pricing Model
D
Debt
E
Equity
EMAS INDEX
Exchange Main Board All-Share Index
EPS
Earning per share
EVA
MVA
Economic Value Added
Market Value Added
NOPAT
Net Operating Profit After Taxes
NPV
Net Present Value
NTA
Net Tangible Assets
P/E RATIOS
Price Earning Ratios
RI
Residual Income
ROA
Return on Assets
ROE
Return on Equity
ROI
Return on Investments
ROS
Return on Sales
SPSS
Statistical Package for Social Science
vn
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In order to measure corporate performance, return on assets (ROA), return on
investment (ROI), profit margin, earning per share (EPS) and many other
methods have been used for quite sometime by investors, accountants and other
users of financial statements.
According to Talib and San (1998), for many years, senior managers, investors
and analyst have been using conventional measures such as earnings, earnings
per share (EPS), P/E ratios or return on equity for setting financial goals, for
measuring financial performances and for valuations. Now another method is
available for measuring corporate performance that is known as economic
value added (EVA).
Economic Value Added (EVA) was advocated by Stern Stewart and Co. in
1982. It is a method of measuring corporate performances in term of
shareholders wealth. EVA is defined as the excess of the dollar amount of net
operating profit after tax (NOPAT) over the dollar charge for capital (both debt
and equity) obtained by multiplying the percentage weighted average cost of
capital (WACC).
With reference to Tully et al (1993), EVA is a way of measuring an operation's
real profitability. Basically, this technique is a version of the residual income
method of performance measurement made popular by David Solomons in the
Iatel960's.
Although this technique appeared as early as 1982, it received little attention
until September 1993. An article in Fortune Magazine written by Tully (1993)
provided a detailed description of the EVA concept, Stern Stewart practice and
successful EVA adoptions by major corporations in the United States of
America.
According to Ray (2001), corporate giants such as Coca-Cola, AT&T, BriggsStratton, DuPont, Eli Lilly, Quaker Oats and others have adopted this new
financial tool and in many instances, reported significantly improved fmancials.
For example, Coca-Cola, one of the earliest users of EVA, saw its stock price
increase from US$ 3 (on a split-adjusted basis) in 1981 when the company first
adopted EVA, to over US$ 60.
Basically the concept of EVA is relatively new (especially in Malaysia) and not
many studies have been conducted in Malaysia as conventional financial
measures are still widely used by most of the corporations instead of EVA.
This study has been carried out to find out whether EVA has an added
advantage as a performance measurement compared to conventional financial
measurement such as percentage increase in net tangible assets, profit margin,
return on assets (ROA) and return on equity (ROE).
This study is an extension of previous research conducted by Talib and San
(1998) in Singapore. This study is conducted to further test the value-added
information of EVA in Malaysian business environment.
In doing so, sample consisting of companies in Malaysia were used to test EVA
against conventional financial measurement techniques. Primary data was
gathered from financial reports and other published data. From these data, EVA
and conventional financial measurements were calculated using certain
formulae.
This study aims at testing the difference between conventional financial
measurement techniques and EVA techniques for measuring corporate
performances.
1.1.1
How EVA works
Basic formula of EVA is Net Operating Profit After Tax (NOPAT)
less Cost of Capital. But first, we have to calculate equity's cost. For
example, overtime, shareholders have received on average a return
that is seven percentage points (7%) higher on stocks than on longterm government bond.
With bond rates around 8.3%, that put the average of equity at 15.3%.
Assuming the company uses debt as well as equity capital, the cost is
the weighted average of the two.
Second step is to find out how much capital is tied up in company's
operation. Then multiply the capital with the rate (15.3%). To figure
the company's EVA, firstly, subtracts taxes from Net Operating Profit
(NOPAT). Then subtract capital cost.
If the result is positive, the company is creating wealth. If it is
negative, the company's operation destroying capital.
For example, operating profit of company "ABC" is RM 160,000 and
tax is RM 60,000.
NOPAT
=
Operating Profit - Tax
RM 160,000 - RM 60,000
RM 100,000
The company uses 67% of equity @ 14.3% and 33% debt @ 5.2%.
Capital used by the company is RM 1,600,000.
Cost of
Capital
=
((67% X 14.3%) + (33% X 5.2%) X
RM 1.6 million
11.3% XRM 1,600,000
RM 180,752
EVA
=
NOPAT - Cost of Capital
RM 100,000-RM 180,752
- RM 80,752
This indicates that the company's operation is destroying the capital.
It is better for the management to fix it fast. To fix it means that the
management has to find ways to increase EVA until it is positive.
Basically, there are three ways to raise EVA.
First, by earning more profit without using more capital, may be by
cost cutting or even downsizing. Second, by using less capital, for
example as practiced by Coke, in which they are using plastic
containers for concentrate instead of costlier metal. Third, by
investing capital in highly return project.
1.2 Statement of the Problem
There are a lot of articles discussing about the effectiveness, positive values
and advantages of EVA. While successful of EVA stories are quite
encouraging, the evidence supporting the theory has been primarily subjective.
Evidence is mixed regarding the efficiency of EVA.
For instance, according to Cordeiro and Kent (2001), there has been a growing
literature examining the effectiveness of EVA adoption. However, this has been
mainly in the form of case studies and reports that document the improved
financial performance resulting from evidence on the effect of EVA adoption at
individual firms.
Chen and Dodd (2001) stated that insufficient empirical research exists to
support the claim of EVA's supremacy as a performance measure in term of
value-relevance. In contrast, limited empirical evidence has suggested
otherwise.
As EVA is a new concept especially in Malaysian business environment, this
study focuses more on calculation part of EVA rather than behavioural aspects
and the concept as a whole.
1.3 Objectives of the Study
Objectives of this study are:
1.
To identify any added value or added advantage in EVA compared to
conventional methods as a performance measurement.
2.
To find out whether there is any significant relationship between EVA
and stock prices (stock return) compared to conventional financial
measurement.
1.4 Scope of the Study
This study only focuses on Industrial Product companies listed on the main
board of Kuala Lumpur Stock Exchange (KLSE). As this study tests the two
techniques by comparison of ranked companies, in my opinion, it is better to
select companies under the same industry or sector in which the comparison is
more rational.
With reference to Talib and San (1998), sample of their study consisted of
companies in the property sector as the properties companies are asset based
and the volatility of earnings in the property sector depend heavily on specific
sales-launch and project completion dates. The recognized inefficiencies of
conventional performance measures on property sector prompts one to consider
if another measure would provide different result.
Some limitations of the sample in Talib and San study including, earnings in
the property sector can be volatile due to dependence on specific dates of sales
launch and project completion dates and complications arising from the use of
percentage of completion or the completed contracts method in recognizing
profit.
To overcome those problems, I have decided to extent period of study from 3
years to five years and using companies classified under Industrial Product as
my sample.
The study covers five financial years to get a better view of the ranked
companies under both techniques. To make it easier, Wilcoxon Test is used in
evaluating both techniques.
In order to support the result, the correlation between stock return is tested
against changes in those financial measurements.
1.5 Organisation of the Study
Chapter Two of this dissertation discusses the literature reviews relating to
previous researches on Economic Value Added (EVA) and Market Value
Added (MVA), definitions of EVA and MVA, other related issue and
arguments on EVA and theoretical framework.
Later research design and methodology are discussed in Chapter Three and the
data analysis and discussion of result in Chapter Four.
Conclusions of the study are presented in Chapter Five including limitations
and the potential future research.
1.6 Motivation of the Study
This study is conducted in Malaysian business environment, as results of the
previous researches are mixed regarding the efficacy of EVA. With reference to
the three researches done by Talib and San (1998), Chen and Dodd (2001) and
Cordeiro and Kent (2001) in which the findings are contrary to the theory of
EVA in term of value added in performance measurement and as the best
measure for valuation purposes.
As the EVA concept is quite new to Malaysian business environment I am
curious to find out whether EVA has superior advantage in term of value-added
information and as performance measurement compared to conventional
financial measurement.
Another reason that drives me into selecting this topic is due to the state of
knowledge in this field. It is hoped that it will give at least a basic idea of EVA
and also explain correlation between financial parameters and stock return
related to Malaysian business environment. Personally, I would like to enhance
my knowledge and share it with others who are interested to read this
dissertation.
CHAPTER TWO
LITERATURE REVIEW
2.1
EVA and its Benefits
Brewer and Chandra (1999) defined "EVA" as a financial performance
measure based on operating income after taxes (NOPAT), the investment in
assets required to generate that income and cost of the investment in assets
(or, weighted average cost of capital) while Shand (2000) defined EVA as
measures of corporation's true economic.
Shand (2000) stated that, EVA can change organisation's capital allocation
process because EVA is like "NPV with memory", which estimates how
much money a project will generate over a number of years and then
determines how much the potential cash flows is worth today.
With reference to case study by Klinkerman (1997), he stated that Centura
Bank's stock rose more than 90% between December 31, 1993 and
September 30, 1996 and according to SNL Securities its outpaced more than
70% rise in the SNL bank stock index after implementation of EVA.
Chen and Dodd (1997) stated that, EVA is the one and only internal measure
of corporate performance to tie directly to value. It is the fuel that fires a
premium (or accounts for the discount) in the market's valuation of any
business. No other measure can make the connection between performance
and value as clear as EVA.
According to Ray (2001), from the firm's perspective, EVA is an internal
financial tool which holds every manager in the firm accountable for every
dollar allotted to them. From the market's perspective, EVA is very useful
tool with which the firm can maximize its value. EVA and productivity are
vitally and inseparably linked one to another. Adopting the EVA measuring
tool allows firms to see where value is being created and where it's not.
EVA is closely related with Market Value Added (MVA) - the difference
between the market value of a firm and the economic value of the capital it
employs, as stated by Lehn and Makhlija (1996).
Moreover, based on research by Lehn and Makhlija (1996), using the relation
of a measure with the stock returns, they concluded that EVA and MVA, like
traditional measures, are effective measures of performance. They also found
that the correlation of EVA with stock returns is higher than the correlation of
any of the other financial measures (ROA, ROS, ROE and MVA) with stock
returns.
Tully and Hadjian (1993) cited that, one of EVA's most powerful properties
is its strong link to stock prices. EVA and stock prices show a remarkable
tendency to move up and down together. Stock prices track EVA far more
closely than they track such popular measures as earnings per share or
operating margins or returns on equity.
This is in line with study conducted by Yook and McCabe (2001), they
concluded that there is evidence of a strong relationship between MVA per
share and average returns.
Chen and Dodd (2001) stated that EVA's purported ability to deliver superior
stock returns appears to be its main selling point as evidenced by the
following Stern Stewart advertisement: "Forget EPS, ROE and ROI. EVA is
what drives stock prices". This statement supported by Brewer and Chandra
(2001) who cited that EVA is better goal congruence than ROI.
Some advantages of EVA as highlighted by Chen and Dodd (2001) including,
the cost of equity capital is the opportunity cost which stockholders forgo by
9
investing in a specific company. Stern Stewart approximates it, based on
capital assets pricing model (CAPM), by adding an individual's company
adjusted risk premium to the return on long-term government bonds.
Another advantage is that EVA's alleged distortions introduced by General
Acceptance Accounting Principals (GAAP) are eliminated, (e.g. Research
and Development (R&D) expenses are capitalized as it will bring future profit
to the company).
Cordeiro and Kent (2001) highlighted several advantages claimed by EVA,
that are:
EVA eliminates economic distortions of GAAP to focus decisions on real
economic results.
EVA provides for better assessment of decisions that affect the balance sheet
and income statement or trade offs between each through the use of the
capital charge against NOPAT.
EVA decouples bonus plans from budgetary targets.
EVA covers all aspects of the managerial cycle.
EVA aligns and speeds decision-making, and enhances communication and
teamwork.
Dierks and Patel (1997) cited that, EVA measures the amount of value a firm
creates during a defined period through operating decisions it makes to
increase margins, improve working capital management, efficiently uses its
production facilities, and redeploys under utilised assets. Thus, EVA can be
used to hold management accountable for all economic outlays whether they
10
appear in the income statement, on the balance sheet, or in the financial
statement's footnotes.
EVA creates one financial statement that includes all the costs of being in
business, including the carrying cost of capital. The EVA financial statements
give managers a complete picture of the connections among capital, margin,
and EVA. It makes managers conscious of every dollar they spend whether
that dollar is spent on or off the income statement or on operating costs or the
carrying cost of working capital and fixed assets.
According to Booth (1997), in summary, it offers a number of advantages
over alternatives:
EVA provides the correct incentives for capital allocation, unlike return on
capital employed, which can lead to under-capitalisation, and earnings, which
can lead to over-capitalisation;
EVA does not encourage actions to flatter short-term results at the expense of
long-term performance, e.g. actions such as cutting research and
development;
EVA shows a good correlation with historical share prices, thus providing
managers with a proxy for share price which they can influence (although
more complex measures such as cash flow return on investment can provide a
higher correlation);
EVA lends itself to use as an annual performance measure, linked to
executive pay, unlike some cash flow measures. Positive economic profit
implies that value creation for shareholders and can be used to reward
managers accordingly.
11
EVA is not, however, a new means of corporate valuation, since it can be
shown that the present value of the forecast economic profits plus the net
assets is equal to the present value of the cash flows. It is something more
useful: it provides a decision-making and performance measurement
framework which is aligned with the strategic analysis and makes strategy
come alive within an organisation as opposed to remaining an ivory tower
top-level annual activity. It should displace other financial measures which
are not consistent with the creation of shareholder value.
Epstein and Young (1997) stated that, EVA and how its use can aid corporate
environmental managers in promoting more proactive environmental
investments, and in funding
capital investments on environmental
improvement, waste reduction, and pollution control in their companies are
discussed. The use of EVA and other shareholder value measures can also
improve general capital investment decisions by integrating environmental
factors that affect the long-term interests of the corporation into the
managerial decision-making process.
2.2
EVA is better than Conventional Financial Measurement
According to Mclntyre (1999), advocator of EVA argues that one important
difference between Residual Income (RI) and EVA is that, it adjusts reported
accounting results to eliminate distortions encountered in measuring true
economic performance.
Brewer and Chandra (1999) stated that EVA is better goal congruence than
Return On Investment (ROI). EVA helps overcome the goal incongruence
that exists between the manager and the firm which cannot be resolved using
ROI.
There are critics on historical accounting performance measures such as
return on assets (ROA), return on equity (ROE), return on sales (ROS), or
earning-per-share are deficient because they are unidimensional and thus
12
unsuited to fully assessing firms' strategic accounting, firms' strategic
outcomes and performance (Dalton et al, 1982; Venktraman and Ramanujam,
1986). They also display that they reflect only past performance and not
future performance.
In research conducted by Cordeiro and Kent (2001), they stated that
accounting performance measures ignore differences in risk-taking between
firms in their quest for profits. Managers may manipulate reported accounting
profits to their advantage and by choosing alternative accounting procedures
within the GAAP framework. Some popular techniques involve switching
between inventory policies, switching depreciation methods, and expense
pension fund allocation.
Another critic Morse et al (1996) states, the primary limitation of Return on
Investment (ROI) is that it encourages managers, who are evaluated and
rewarded based solely on this measures, to make investment decisions that
are in their own best interests, while not being in the best interests of the
company as a whole.
Chen and Dodd (1997) cited that, while accounting profits such as earnings
per share and return on equity are among the most commonly used
performance measures; they are criticized for not taking into consideration
the total cost of capital and for being unduly influenced by accrual-based
accounting conventions. In contrast, EVA, the difference between after-tax
operating profits and the total cost of capital, is promoted as a measure of a
company's real profitability.
EVA allows investors to evaluate whether the return being earned on invested
capital exceeds its cost as measured by the returns from alternative capital
uses. Management may do different things to create value for the business.
Whatever it does, the value created will ultimately be reflected in the EVA
measure.
13
According to Shand (2000), the use of EVA has grown steadily as business
managers have become disgruntled with standard accounting practices that
often fail to generate information helpful to decision making. More
companies have turned to performance measurement tools, such as EVA, to
bolster their understanding of and ability to achieve profitability.
Yook and McCabe (2001) stated that the conventional measures have some
deficiencies as guides to shareholders wealth maximization, because they
ignore the cost of capital, such measures lack a formal mechanism for
determining whether achieving such goals create values for shareholders.
Although a firm earns a positive net income and a high accounting rate of
return, it may not contribute to shareholder wealth if earnings fall short of the
required returns that shareholders could earn by investing in other securities
of comparable risk.
2.3
Wrong Application of EVA
The three elements used in calculating EVA are operating income after taxes,
investment in assets and the cost of capital. Highlighted by Stewart III (1995)
EVA may be wrongly applied by business people. There are five main area
highlighted by him.
Firstly, they don't make EVA way of life. The company by not adopting
EVA as the centerpiece of a comprehensive financial management system, in
which, all the policies, procedures, measures and methods companies use to
guide and control their operations and strategy.
Secondly, most managers try to implement EVA too fast. EVA cannot be
implemented overnight. It should start with top management using it day to
day, and then gradually push it down through the rank. While EVA should be
fully integrated into the company, it should not be overdone by trying to
apply it to every corner and gap. According to Kudla and Arendt (2000),
14
depending on a firm's sales, integration of EVA can take anywhere from
months to a few years, and the full impact of the system on shareholder
wealth creation may take three to four years.
Thirdly, the boss lacks conviction. If the boss is not totally committed, staffs
can form war among themselves.
Fourthly, managers fuss too much about it. When implementing EVA,
companies tend to make it a big philosophical issue.
Lastly, training gets short shrift. This is happens because companies
sometimes don't disseminate EVA knowledge widely enough through the
organisation.
According to Kudla and Arendt (2000), a solid commitment from senior
management is vital for successful integration and implementation of EVA
programs. Without management buy-in, employees may view the program as
just another temporary corporate trend.
The EVA implementation plan should provide for continuous training at the
appropriate organisational levels and link EVA performance to manager and
employee compensation. Before proceeding with the development of an
implementation plan, management should conduct a feasibility study that
calculates EVA for both the company and its competitors. This allows the
company to benchmark its performance.
2.4
Critics of EVA
In research conducted by Ray (2001), he cited that EVA is nothing more than
Net Present Value (NPV) re-packaged at departmental, divisional and firmwide levels. Further, the critics argue that the Stern Stewart and Co. only real
contribution to the capital budgeting and incentive compensation process is
15
the development of (arguably, arbitrary) measures with which to implement
NPV on scales larger than a project basis.
Another author, Barfield (1998), stated that a key criticism of EVA is that it
is simply a retreated model of Residual Income (RI) and that the large
number of "equity adjustments" incorporated in the Stern Stewart system
may not be necessary. The similarity between EVA and RI is supported by
Chen and Dodd (1997) who noted that most of the EVA and RI variables are
highly correlated and are almost identical in terms of association to stock
returns.
With reference to Cordeiro and Kent (2001), in their conclusion, they agree
that it is reasonable to assume that EVA adoption may not be suitable for all
firms all the times as other industry factors need to be considered such as the
firm's strategic goals and drivers, management power and style, and buy-in,
understanding and accountability of its employees.
According to Chen and Dodd (2001), there were insufficient empirical
researches existing to support the claim of EVA's supremacy as a
performance measure in terms of value-relevance. Further in their research,
they found that their data do not support the assertion that EVA is the best
measure for valuation purposes.
In study conducted by Mclntyre (1999) also highlighted that there is no
consensus of whether EVA or ROA provides the more useful performance
measure. Academic accountants, in general, appear to favour EVA because
its goal-congruence property. Many managers and practitioners, on the other
hand, appear to favour ROA, perhaps because it is similar to the way returns
on many types of investment are reported.
In research done by Talib and San (1998), the results showed that both
methods, conventional financial measures and EVA produced relatively
16