How do financial metrics such as ROIC and EVA relate to strategy?

• A. They measure customer satisfaction and brand value
• B. They measure value creation and economic profit, informing resource allocation and performance evaluation
• C. They measure market share gains
• D. They measure cost control only

Answer: (B)

The main idea is that strategy is about how to allocate and use capital to create value, and ROIC and EVA are metrics that translate strategic choices into economic outcomes. ROIC measures how efficiently the firm turns invested capital into operating profit, so it shows whether the capital being deployed by strategy is earning returns above the cost of that capital. EVA goes a step further by subtracting a charge for the capital used from after‑tax operating profit, giving a clear read on true economic profit. When ROIC is higher than the cost of capital, and EVA is positive, the strategy is creating value; when these indicators trend negative, it signals that current resource choices may be destroying value and need adjustment.

Because they tie financial performance directly to how resources are allocated and used, these metrics inform which projects or business units to fund, how to optimize operations, and how to evaluate performance across the organization. They help managers compare units, set incentives, and steer strategy toward activities that generate sustainable value rather than merely increasing short‑term earnings.

They’re not primarily measures of customer satisfaction, brand value, market share gains, or purely cost control. While those factors matter, ROIC and EVA focus on value creation from capital deployment and the economic profit generated by strategy.