How to Move Up in the Rankings

At the corporate level:

While there is no single measure that is perfect, we rely on two key underlying metrics: MVA, or market value added, which is the spread between a firm’s overall market value and the total capital that’s been invested in its net business assets; and EVA, or economic value added, which measures a firm’s economic profit—it’s profit after subtracting a full, weighted average cost of capital, and after correcting  accounting distortions.

  • Use EVA and the EVA Margin and EVA Momentum ratio statistics, to assess profitability, profitable growth and wealth-creation throughout the company.
  • Manage your portfolio of businesses from a wealth-creation perspective. This includes opportunity sensing—entering lucrative or fast-growing businesses—as well as putting businesses making sub-par contributions into other hands or shuttering them. Set the contribution hurdle rate to maximize economic-value creation.
  • Ensure that the company’s capital structure is right. This affects the capital charge and invested capital. Equity is more expensive than debt, but too much debt can kill a company.
  • Avoid overpaying for acquisitions or stock buybacks.
  • Pay managers bonuses at all levels for increasing EVA, and give them the tools and training to help them do so.

At the business unit level:

  • The general managers of businesses need to find the best things they can do to boost operating results.

At all levels:

  • As did the leading Wealth Creators, put together a prosperity design for your company. How, exactly, will you achieve uncommon success? How will you improve: customers’ feelings about your company and its offerings, your value propositions, the promises your brands represent, etc.? How will you get all you can out of your assets, including your intangible assets?
  • Finally, manage internal and external risks across the company and its aggregate risk-reward profile by taking a wide-angle lens to what could happen.
Bennett Stewart, CEO, EVA Dimensions
Bennett Stewart, CEO, EVA Dimensions
Drew Morris, CEO, Great Numbers!
Drew Morris, CEO, Great Numbers!

Bennett Stewart is Founder and CEO of EVA Dimensions. EVA Dimensions, based in Locust Valley, NY, provides software and training and support services that automate the best practices in EVA.

Drew Morris is Founder and CEO of Great Numbers!. Based in Red Bank, New Jersey, Great Numbers! helps executives and owners create higher profits and revenue growth.

SHARE
Chief Executive magazine (published since 1977) is the definitive source that CEOs turn to for insight and ideas that help increase their effectiveness and grow their business. Chief Executive Group also produces e-newsletters and online content at chiefexecutive.net and manages Chief Executive Network and other executive peer groups, as well as conferences and roundtables that enable top corporate officers to discuss key subjects and share their experiences within a community of peers. Chief Executive facilitates the annual “CEO of the Year,” a prestigious honor bestowed upon an outstanding corporate leader, nominated and selected by a group of peers, and is known throughout the U.S. and elsewhere for its annual ranking of Best & Worst States for Business. Visit www.chiefexecutive.net for more information.

PARTNER CENTER