Each of the traditional financial measures has its respective strengths and weaknesses. As a result, most companies require that more than one measure be present in evaluating the attractiveness of a project. One of the flaws in all of the above metrics is that they work very well for companies that have an industrial capital structure in the form of plants and buildings. But they may be less appropriate where the main asset of the company is intellectual property, goodwill or marketing allure. As a result, financial theorists are kept busy trying to come up with better measures for project analysis. EVA is one such measure and at its simplest EVA looks to measure the effects that a new project will have on share value. This is very appealing to the folks with a 50,000-foot perspective, but most IT and line-of-business managers are held to somewhat more mundane issues such as departmental profitability and budgets. Unfortunately as the recent stock market highs and lows have taught many of us, stock prices by nature are not entirely logical and there are many factors which affect a company’s stock that are not based on financial reality. Therefore, corporate America still relies largely on traditional financial measures when it comes to making alternative investment choices. Getting agreement on terms is key to a common understanding of your project goals. One can proceed from there to explain the financial relevance of specific product features and performance issues. However the product discussion becomes increasingly irrelevant unless one can trace back a feature to a financial benefit or reduction in cost.
EVA = Equity Value Analysis Print
Modified on: Sun, 18 Oct, 2015 at 10:31 AM
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