Forget P/Es. Trailing, forward, westward or eastward, the venerableĀ price-earnings ratio tells you little more about the value of a company than its marketing budget. Or (ugh!), its "consensus analyst rating."
The best measure of how companies perform for shareholders is a wonkish tool called Economic Value Added, or EVA. The advantage of EVA is that it corrects the gap, so to speak, in regular GAAP accounting by gauging what's really important: whether shareholders are getting returns superior to what they'd garner putting their money in another, equally risky stock or index fund.
According to EVA, a company only truly enriches investors when it exceeds the return that the market already expects from similar stocks. When it beats that bogey, it's truly making money for you. When it falls short, it's a loserāeven if its official earnings numbers look good.
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