Comparative analysis between EVA® and traditional financial (accounting) indicators in Brazilian civil construction companies: a documentary study

Abstract

Companies are required to make changes in order to face the competition and to keep up with the current economic scenario. Therefore, it is necessary to seek more reliable indicators that allow a better understanding of how much has been added to the business. This paper proposes to calculate EVA® and compare it with the traditional economic indicators when calculating accounting profit, checking the advantages and disadvantages of applying EVA® as a Value-based Management and financial control system. This study is important to recognize the best proposal that adequately measures the value of capital and its opportunity cost. The methodology proposed was based on the application of a metric to appropriately measure the value of the capital and the cost of its remuneration through a comparison between the traditional method and EVA® in ten civil construction companies extracted from the BM&FBOVESPA website. The result of this study suggests that the accounting profit does not represent the actual value of gain or loss for stakeholders, in which the loss itself does not imply damage because the traditional metric does not consider the cost of opportunity or equity compensation.

Keywords:
EVA®; WACC; Capital cost; Value-based Management