Tuesday, January 19, 2010

New Performance Metric

Geoff Colvin's recent column in Fortune describes a new performance metric, called EVA Momentum. Bennett Stewart, one of the creators of the EVA (Economic Value Added) metric, has developed this new one as well. The original EVA metric measures after-tax profit beyond a company's opportunity cost of capital. EVA Momentum simply equals a firm's EVA divided by the prior period's sales. Achieving high EVA Momentum means that a firm has generated profitable growth.

Stewart claims in the article that this new metric cannot be manipulated - a grand claim indeed. According to Stewart, "It's the only percent metric where more is always better than less. It always increases when managers do things that make economic sense."

It remains to be seen whether Stewart is correct, but I find the concept intriguing to say the least.

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