The importance of these distortions to companies

• These presented pitfalls of EVA can often be ignored since they are in many cases small and furthermore it is justifiable to state that:
  • It is usually always good when EVA increases and always bad when EVA decreases, thus the change of EVA is often more important than the absolute level
• However it is vital for every CFO to realize that EVA has its weaknesses and thus it is not the ultimate truth and it does not always tell you the amount of wealth created or destroyed
• With bonus systems these pitfalls have more importance, since thereby bonuses can be divided even after wealth destruction with a poorly structured bonus scheme
• Understanding the pitfalls helps companies to understand both the concept of EVA and concept of profitability better

Slide 11 of 11