The EVA Curve Model: An Analytical and Econometric Approach

This research aims to analytically develop the traditional EVA formula by investigating how EVA behaves in relation to a value driver represented by revenue. EVA and revenue do not invariably exhibit a direct proportional relationship given the impact of management decisions on operational, financial, and investment structures. The analytical development of the EVA formula reveals the interplay between these structures and the underlying value creation variables, resulting in a versatile model — the EVA Curve Model — which can be employed for planning and monitoring business decisions, as well as evaluating management performance. An empirical analysis is then carried out. The EVA Curve Model’s validity is demonstrated by applying an econometric approach to two Italian economic sectors: coffee roasting and construction. These sectors were chosen for two reasons: the former is characterised by stability and maturity, while the latter is strongly influenced by general economic trends, as well as specific government investment and fiscal policies. The findings of this empirical study confirm that, in some cases, there is an inverse relationship between total revenues and EVA. The proposed model helps managers take corrective action on the underlying variables to restore optimal conditions.