Why EVA is better than ROI (ROCE, ROIC, RONA, ROA) and earnings, operating profit etc.

• Equity investors should earn on their capital a return far over risk-free interest rate in order to induce and maintain capital in the company

• Therefore earnings should always be judged against the capital used to produce these earnings

• Earnings can be easily increased simultaneously worsening the position of shareholders e.g. if more capital is poured into a company although the return on capital is 5% or less (even lower than long-term government bond)

• Thus it is clear for most people that any earnings figure can not alone be a reliable performance measure (still some companies use EPS !?)

• Following slides focus on explaining why also return on capital alone is often an unreliable performance measure