Page 202 - 5.2 i. Manac Costing ITC Summarised Notes

PERFORMANCE MEASUREMENT

Disadvantages of EVA

• The EVA can only provide a rough approximation of

economic profit as the starting point for calculating EVA

is the conventional accounting profits, based on historic

costs and not future cash flows.

• The EVA calculation involves making a number of

adjustments to the profitability measure in order to

convert the historic accounting data and thereby

approximate economic profit and asset values.

• The use of estimates of economic profit in evaluating

performance results in lack of precision and objectivity.

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