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No one can resist an idea whose time has come.

Victor Hugo

EVA Momentum

EVA Momentum is the change in a business's EVA divided by the prior period's sales. It is introduced as a more reliable business performance metric compared to EVA. The consultants Bennett Stewart and Joel Stern who developed the ratio claim that it is the one ratio that can't be manipulated. It's the only percent metric where more is always better than less. It always increases when managers do things that make economic sense. In order to to get EVA momentum right, business managers needs to refrain from being obsessive about sales. If increase in sales doesn't boost EVA, it does nothing to create value. Managers should consider bailing out of EVA-negative businesses and annihilating wasted capital.

30 May 2011 04:08:38

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