back to hospitality consulting

The presentation aims to…

• Provide an understanding of the concept and discuss the following:
  • Suitability of EVA in the hospitality industry
  • Applicability of EVA in a departmental setting
  • Executive compensation package link with EVA
  • Operational budget link with value creation
  • Adding EVA insight into capital budget forecasting

How does this relate to the hospitality industry?

EVA performance measurement helps the two components of the industry

• owners/investors
• managers

in the following way:
Owners/Investors will better understand if wealth is created or eroded from the company. Net Income based on GAAP (Generally Accepted Accounting Principles) fails to do so. For example if a company has made a profit based on GAAP but has a considerable amount of capital deployed to earn this income and if the cost of this capital is more than the GAAP profit then essentially there has been an erosion of wealth. EVA tries to measure this.

Managers, when they have a better understanding of performance, can implement such a measurement for their incentive evaluation. As an example GAAP suggests training costs be expensed to calculate income. To calculate EVA these training costs are capitalized and expensed over a period of time. EVA does not penalize management for training and developmental costs.

Managers with their increased knowledge of the income statement can then direct their supervisors to be aware of the relationship between capital and income which could result in a simultaneous increase in operating profits and a reduction in capital and in turn capital costs.

This new concept of EVA and its applications will generate interest among General Managers, Financial Officers, Controllers, Financial Analysts and Accountants.