I think there's an awful lot of twaddle and bullshit on…
“I think there's an awful lot of twaddle and bullshit on EVA. The whole game is to turn retained earnings into more earnings. EVA has ideas about cost of capital that make no sense. Of course, if a company generates high returns on capital and can maintain this over time, it will do well. But the mental system as a whole does not work.”
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
EVA’s theoretical basis is flawed because it misapplies cost of capital, leading to misleading performance metrics despite its popularity
In simple terms: EVA’s cost‑of‑capital assumptions are unrealistic
Key Takeaway
Question EVA’s assumptions before using it
Themes
finance
valuation
critique
capital allocation
Mood
critical
analytical
Type
financial
critical
When to use this quote
- investment analysis
- corporate budgeting
- financial reporting
Key Concepts
economic theory
performance measurement
shareholder value
Questions to Reflect On
- What alternatives better measure value creation?
- How can EVA be corrected for practical use?
A Different Perspective
EVA can still be useful if adjusted for realistic cost of capital