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Can the Economic Value Added Be Used as the Universal Financial Metric?

Author

Listed:
  • Zbysław Dobrowolski

    (Institute of Public Affairs, Jagiellonian University, 30-348 Kraków, Poland)

  • Grzegorz Drozdowski

    (Department of Economics and Finance, Jan Kochanowski University in Kielce, 25-369 Kielce, Poland)

  • Mirela Panait

    (Faculty of Economic Sciences, Petroleum—Gas University of Ploiesti, 39 Bucharest Boulevard, 100680 Ploieşti, Romania)

  • Arkadiusz Babczuk

    (Institute of Economic and Financial Expertise, 91-415 Łódź, Poland)

Abstract

Previous research into Economic Value Added (EVA) has extensively described it as a business metric of firms. Still, no studies have confirmed or denied that EVA is a universal metric and that one may use EVA in unstable markets in the same way as in stable and developed economies. Meanwhile, the green energy revolution, ensuring carbon neutrality through green innovations, requires enormous investments, and the projects realised must be appropriately tailored. These projects are realised by different firms, including those from developing countries, and investors need solid financial metrics. The study determines whether EVA is a universal metric of owners’ value in the energy sector. The research proves that this metric does not correctly reflect the limitations of emerging markets, can lead to incorrect managerial decisions and limit shareholders’ value. Therefore, there is a need to reanalyse financial metrics used in financial planning, including EVA. The study eliminates this research gap and, based on data from seven countries and the Euro Zone, explains why one may not perceive the currently used EVA formula as a universal financial metric. Consequently, the study modifies the EVA formula and presents a universal solution tailored to unstable economies. In the conducted research, literature studies were used, taking into account the methodology of a systematic literature review, including bibliometric analysis. Based on this review, it is shown that little is known about whether EVA as a financial measure can be used in energy management. Two conclusions emerged: first, the research contributes to developing the business and management science; second, identifying risks associated with EVA metrics helps practitioners. In addition, the study defined further research directions.

Suggested Citation

  • Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Arkadiusz Babczuk, 2022. "Can the Economic Value Added Be Used as the Universal Financial Metric?," Sustainability, MDPI, vol. 14(5), pages 1-14, March.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:5:p:2967-:d:763426
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    2. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Simona Andreea Apostu, 2022. "The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector," Energies, MDPI, vol. 15(18), pages 1-15, September.
    3. Łukasz Jarosław Kozar & Adam Sulich, 2023. "Energy Sector’s Green Transformation towards Sustainable Development: A Review and Future Directions," Sustainability, MDPI, vol. 15(15), pages 1-18, July.
    4. Todor Stoilov & Krasimira Stoilova, 2022. "An Algorithm for Business Management Based on Portfolio Optimization," Mathematics, MDPI, vol. 10(22), pages 1-19, November.
    5. Prasoon Mani Tripathi & Varun Chotia & Umesh Solanki & Rahul Meena & Vinay Khandelwal, 2022. "Economic Value Added Research: Mapping Thematic Structure and Research Trends," Risks, MDPI, vol. 11(1), pages 1-19, December.

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