Implementing Economic Value Added Measure Performance For An Organizition

With the developing of IT and world trade, liquidity of the capital is faster, the investors are more eager to have higher return than before, because they can identify more attractive opportunities of more return than ever. As a result, managers must make performance better or choose leaving. There need a effective managerial tool to communication between investors and managers which can be accepted by each and demonstrate the performance faithfully and objectively.Economic Value Added is such a tool, and more ,EVA implementing creates an important and big chance to change mindset, managerial method, measurement and motivation of an organization. Besides that ,it could construct belief in them.EVA is the difference between return on an organization's capital and cost of the capital. It involves the cost both the debt and the equity , and represents the true value added from the operations.EVA is one of the tool for performance measurement radically. There is two things important on calculating EVA. Firstly it need to estimate the cost of the equity, then get the WACC(weighted average cost of capital) and the cost of the capital invested. Secondly, some account items have to adjusted in which value created activities are distorted according to the general accounting principles to ensure the result can be demonstrated comprehensively. Implementing EVA for a company successfully need not only adopt the EVA indicator on senior management class at the corporate level, but also on management class at the department lever. On the base of the implementation at the corporate lever ,to take some new methods is the key point on the measuring the performance of the functional departments, front line managerial unit even of the employees' individuals such as environmental economic value added(E2VA) and value driven factors(V-Driven).There are still many things to do while an EVA managerial plan is being implemented for an organization. There are also some obstacles on this process. Only be done under particular principle and process, the planning will bring a huge improvement of the performance and the efficiency of the management.Of course, EVA has specific shortages, and is not suit to each enterprise. In China, applicability of culture is still a question that mustbe attention to.Totally, the successful implementation of some companies abroad gives us many valuable experiences ,and more ,the theory of the EVA brings a settlement for the core question of state-owned enterprises, for example, lack of the owner ,motivation of the managers etc.. So EVA is a management tool worth research and attempt to implement.