Long-Term Thinking
Perhaps the biggest benefit of this approach is to get employees and managers to think and act like shareholders. EVA encourages long-term perspective among the managers and employees of organization. It emphasizes that in order to justify investments in the long run they have to produce at least a return that covers the cost of capital. In other case, the shareholders would be better off investing elsewhere. This approach includes that the organization tries to operate without the luxury of excess capital and it is understood that the ultimate aim of the firm is to create shareholder value by enlarging the product of positive spread multiplied with capital employed. The approach a new focus on minimizing the capital tied to operations. Firms have so far done a lot in cutting costs but cutting excess capital has been paid less attention.