Sep 3, 2024
In this episode of the Wade Borth Podcast, he dives deep into the concept of Economic Value Added (EVA), a topic that Nelson Nash highlighted in his book Becoming Your Own Banker. EVA is often misunderstood, but it's crucial for anyone looking to maximize the value of their capital. Wade explores a key 1993 Fortune magazine article that discusses how major companies like Coca-Cola and Quaker Oats utilized EVA to drive profitability. Join Wade as he breaks down the principles of EVA, its relevance to personal finance, and how understanding the true cost of your capital can lead to better financial decisions.
Episode Highlights
00:24 - Nelson Nash mention - Introduction to Economic Value Added
(EVA).
01:02 - Fortune Magazine article - Highlighting the 1993 article by
Shawn Tully.
02:02 - Key quote from Nelson - “EVA’s basic premise is, if you
understand what’s really happening, you’ll know what to
do.”
04:58 - Use of capital - Different interpretations of capital’s
value and return.
07:41 - EVA in practice - Managers acting like shareholders.
12:10 - Real profitability - Importance of measuring real
profitability of operations.
12:51 - Cost of capital overlooked - Emphasis on recognizing the
full cost of capital.
13:59 - Example from CSX - Success through understanding and
utilizing EVA.
18:17 - Banks and capital returns - Comparison of banks
understanding and getting returns on
their capital.
20:22 - Financial statement gap - Missing equity cost in financial
statements.
22:59 - Real estate example - Miscalculating profitability by
excluding capital costs.
27:03 - Efficiency in assets - Illustration through CSX’s
unutilized resources.
32:56 - Importance to individuals - Treating personal capital with
the same seriousness as
businesses do.
35:48 - Practical approach - How to apply EVA principles in
personal finance.
39:46 - Quaker case study - Realizing the non-free nature of
inventories/capital.
43:34 - Main takeaway - Understanding what is really happening to
make informed financial
decisions.
44:05 - Nelson Nash’s legacy - Emphasis on controlling the banking
function at an individual
level.
Episode Resources
- Connect with Wade Borth
- https://www.sagewealthstrategy.com/
- wade@sagewealthstrategy.com